Federal Reserve Bank Services, 67731-67748 [2010-27697]

Download as PDF Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices Reporters: Foreign banking organizations (FBOs). Annual reporting hours: FR Y–7NS: 237; FR Y–7Q (quarterly): 340; FR Y–7Q (annual): 111. Estimated average hours per response: FR Y–7NS: 1.0; FR Y–7Q (quarterly): 1.25; FR Y–7Q (annual): 1.0. Number of respondents: FR Y–7NS: 237; FR Y–7Q (quarterly): 68; FR Y–7Q (annual): 111. General description of report: This information collection is mandatory (12 U.S.C. 1844(c), 3106(c), and 3108). Confidential treatment is not routinely given to the data in these reports. However, confidential treatment for information, in whole or in part, on any of the reporting forms can be requested in accordance with the instructions to the form, pursuant to sections (b)(4) and (b)(6) of the Freedom of Information Act [5 U.S.C. 522(b)(4) and (b)(6)]. Abstract: The FR Y–7NS collect financial information for nonfunctionally regulated U.S. nonbank subsidiaries held by foreign banking organizations (FBOs) other than through a U.S. bank holding company (BHC), U.S. financial holding company (FHC), or U.S. bank. The FR Y–7NS is filed annually, as of December 31, by top-tier FBOs for each individual nonbank subsidiary (that does not meet the filing criteria for filing the detailed report) with total assets of at least $50 million, but less than $250 million. The FR Y– 7Q collects consolidated regulatory capital information from all FBOs either quarterly or annually. FBOs that have effectively elected to become FHCs file the FR Y–7Q quarterly. All other FBOs (those that have not elected to become FHCs) file the FR Y–7Q annually. Board of Governors of the Federal Reserve System, October 29, 2010. Jennifer J. Johnson, Secretary of the Board. [FR Doc. 2010–27698 Filed 11–2–10; 8:45 am] BILLING CODE 6210–01–P FEDERAL RESERVE SYSTEM jlentini on DSKJ8SOYB1PROD with NOTICES Change in Bank Control Notices; Acquisitions of Shares of a Bank or Bank Holding Company The notificants listed below have applied under the Change in Bank Control Act (12 U.S.C. 1817(j)) and § 225.41 of the Board’s Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the notices are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)). The notices are available for immediate inspection at the Federal VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 Reserve Bank indicated. The notices also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing to the Reserve Bank indicated for that notice or to the offices of the Board of Governors. Comments must be received not later than November 16, 2010. A. Federal Reserve Bank of Chicago (Colette A. Fried, Assistant Vice President) 230 South LaSalle Street, Chicago, Illinois 60690–1414: 1. Robert John Dentel, Victor, Iowa, and Mary P. Howell, Ames, Iowa; each to control 25 percent or more of the voting shares of Dentel Bancorporation, and thereby indirectly control of Victor State Bank, both of Victor, Iowa; Corydon State Bank, Corydon, Iowa; First State Bank of Colfax, Colfax, Iowa; Maxwell State Bank, Maxwell, Iowa; Pocahontas State Bank, Pocahontas, Iowa; and Panora State Bank, Panora, Iowa. Board of Governors of the Federal Reserve System, October 28, 2010. Robert deV. Frierson, Deputy Secretary of the Board. [FR Doc. 2010–27683 Filed 11–2–10; 8:45 am] BILLING CODE 6210–01–P FEDERAL RESERVE SYSTEM [Docket No. OP 1396] Federal Reserve Bank Services Board of Governors of the Federal Reserve System. ACTION: Notice. AGENCY: The Board of Governors of the Federal Reserve System (Board) has approved the private sector adjustment factor (PSAF) for 2011 of $39.5 million and the 2011 fee schedules for Federal Reserve priced services and electronic access. These actions were taken in accordance with the requirements of the Monetary Control Act of 1980, which requires that, over the long run, fees for Federal Reserve priced services be established on the basis of all direct and indirect costs, including the PSAF. The Board has also approved maintaining the current earnings credit rate on clearing balances. DATES: The new fee schedules and earnings credit rate become effective January 3, 2011. 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), SUMMARY: PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 67731 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 Jonathan C. Mueller, Senior Financial Analyst, (202/530–6291), 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 2011 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 2000 through 2009, the Reserve Banks recovered 97.8 percent of their total expenses (including imputed costs) and targeted after-tax profits or return on equity (ROE) for providing priced services.1 Table 1 summarizes 2009, 2010 estimated, and 2011 budgeted costrecovery rates for all priced services. Cost recovery is estimated to be 102.9 percent in 2010 and budgeted to be 102.0 percent in 2011. The check service accounts for slightly over half of the total cost of priced services and thus 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 93.0 percent for the ten-year period. This measure of long-run cost recovery is also published in the Board’s Annual Report. E:\FR\FM\03NON1.SGM 03NON1 67732 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices significantly influences the aggregate cost-recovery rate. TABLE 1—AGGREGATE PRICED SERVICES PRO FORMA COST AND REVENUE PERFORMANCE A [$ Millions] 1b Revenue Year 2009 ..................................................................................... 2010 (estimate) .................................................................... 2011 (budget) ....................................................................... 2c Total expense 675.4 572.7 497.6 3 Net income (ROE) [1¥2] 707.5 543.3 470.9 4d Targeted ROE 5e Recovery rate after targeted ROE [1/(2+4)] 19.9 13.3 16.8 92.8% 102.9% 102.0% -32.1 29.4 26.7 a Calculations in this table and subsequent pro forma cost and revenue tables may be affected by rounding. 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, federal funds, 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. For 2011, investments are limited to short-term Treasury securities and federal funds with no constant spread imputed. 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 2010 estimate, the targeted ROE reflects average actual clearing balance levels through July 2010. 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. b Revenue Table 2 portrays an overview of costrecovery performance for the ten-year period from 2000 to 2009, 2009, 2010 budget, 2010 estimate, and 2011 budget by priced service. TABLE 2—PRICED SERVICES COST RECOVERY [Percent] Priced service 2000–2009 All services ........................................................................... Check ................................................................................... FedACH ............................................................................... Fedwire Funds and NSS ..................................................... Fedwire Securities ............................................................... 2009 97.8 96.8 102.6 101.5 101.0 2010 Budget 92.8 92.8 93.4 92.1 93.8 96.9 94.7 99.9 100.2 103.1 2010 Estimate 2011 Budget a 102.9 103.7 101.9 100.2 104.3 102.0 102.8 100.4 101.0 103.8 jlentini on DSKJ8SOYB1PROD with NOTICES a 2011 budget figures reflect the latest data from the Reserve Banks. The Reserve Banks will transmit final budget data to the Board in November 2010, for Board consideration in December 2010. 1. 2010 Estimated Performance—The Reserve Banks estimate that they will recover 102.9 percent of the costs of providing priced services in 2010, including imputed costs and targeted ROE, compared with a budgeted recovery rate of 96.9 percent, as shown in table 2. The Reserve Banks estimate that all services will achieve full cost recovery. Overall, the Reserve Banks estimate that they will fully recover actual and imputed costs and earn net income of $29.4 million, compared with the target of $13.3 million. The greaterthan-targeted net income is driven largely by the performance of the check service, which had greater-thanexpected operational cost savings and revenue. 2. 2011 Private Sector Adjustment Factor—The 2011 PSAF for Reserve Bank priced services is $39.5 million. This amount represents a decrease of $2.4 million from the estimated 2010 VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 revised PSAF of $41.9 million. Although the estimated imputed cost of equity is expected to increase, it is offset by a decrease in other required PSAF costs.2 3. 2011 Projected Performance—The Reserve Banks project a priced services cost recovery rate of 102.0 percent in 2011. The 2011 fees for priced services are projected to result in a net income of $26.7 million compared with the target ROE of $16.8 million. The primary risks to the Reserve Banks’ ability to achieve their targeted 2 In October 2009, the Board approved a budgeted 2010 PSAF of $50.2 million, which was based on the July 2009 clearing balance level of $4,831.5 million. Since that time, clearing balances have declined, which affects the 2010 PSAF and NICB. The 2010 estimated PSAF of $41.9 million, which is based on actual average clearing balances of $2,772.2 million through July 2010, reflects the lower equity costs resulting from the decrease in clearing balances. The 2010 final PSAF will be adjusted to reflect average clearing balance levels through the end of 2010. PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 cost recovery rates are unanticipated volume and revenue reductions and the potential for cost overruns or delays with technological upgrades. In light of these risks, the Reserve Banks will continue to refine their business and operational strategies to aggressively manage operating costs, take advantage of efficiencies gained from technological upgrades, and increase value-added product revenue. 4. 2011 Pricing—The following summarizes the Reserve Banks’ changes in fee schedules for priced services in 2011: Check • The Reserve Banks will decrease FedForward fees 8 percent for checks presented electronically and increase FedForward fees 50 percent for checks presented as substitute checks.3 The 3 FedForward is the electronic forward check collection product. A substitute check is a paper E:\FR\FM\03NON1.SGM 03NON1 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices average fee paid by FedForward depositors will decline 14 percent from the average 2010 fee as the number of depository institutions that accept their presentments electronically increases. The Reserve Banks will retain FedReturn fees for checks returned electronically through FedLine at the current level, decrease fees 30 percent for checks returned electronically in PDF files, and increase fees 14 percent for endpoints that receive substitute checks.4 The average fee paid by FedReturn depositors will decrease 20 percent as the number of institutions that accept their returns electronically increases.5 • The Reserve Banks will increase traditional paper forward collection fees 181 percent and traditional paper return service fees 81 percent. • With the 2011 fees, the price index for the total check service will have increased 80 percent since 2001. In comparison, since 2005, the first full year in which the Reserve Banks offered Check 21 services, the price index for jlentini on DSKJ8SOYB1PROD with NOTICES reproduction of an original check that contains an image of the front and back of the original check and is suitable for automated processing in the same manner as the original check. 4 FedReturn is the electronic check return product. 5 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. The Reserve Banks are decreasing FedForward fees for the presentment of checks to electronic endpoints and raising fees for the presentment of checks to substitute check endpoints, the effective fee paid by depository institutions will decline by 14 percent in 2011 due to the expected increase in the number of institutions that accept checks electronically. The Reserve Banks are also retaining FedReturn fees for checks delivered electronically through FedLine, decreasing fees for checks delivered electronically via PDF files, and increasing fees for checks delivered as substitute checks. However, the effective fee paid by depository institutions will decrease 20 percent in 2011 as an increasing proportion of checks are returned to electronic endpoints and PDF receivers, which are subject to relatively lower fees than checks returned to paper endpoints. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 Check 21 services will have decreased 60 percent. FedACH • The Reserve Banks will raise the addenda record fees for originations and receipts from $0.0013 to $0.0015 and increase the information extract file fee from $50 to $75. • With the 2011 fees, the price index for the FedACH service will have decreased 32 percent since 2001. Fedwire Funds and National Settlement • The Reserve Banks will implement a per-item surcharge of $0.18 on the sender of Fedwire Funds transfers processed by the Reserve Banks after 5 p.m. ET. • The Reserve Banks will introduce a $10 monthly fee for the usage of the import/export feature of the FedLine Advantage electronic access package for the Fedwire Funds Service. This feature allows FedLine Advantage customers to import (export) an external file with multiple transactions into (from) the Fedwire Funds Service. • The Reserve Banks will increase the National Settlement Service’s settlement file fee from $18 to $20, and the settlement entry fee from $0.80 to $0.90. • The Reserve Banks will change the Fedwire Funds Service’s volume-based transfer fee structure to include incentive discounts based on customers’ historic volume. This change will increase the base price of transfers but will provide substantial discounts from these fees for a portion of customers’ expected volumes. The change will be implemented in two parts. First, the existing fees for all volume tiers will increase by as much as 73 percent. Second, customers will receive an 80 percent discount on these higher fees for the portion of a customer’s monthly online volume that exceeds 50 percent of their historic benchmark volume, calculated as an average monthly volume of activity over the previous five calendar years. The change will produce a more stable stream of revenue for the Fedwire Funds service, for the first 50 percent of their customers’ historic PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 67733 benchmark volume. Further, the Reserve Banks expect the incentive discounts to improve their ability to retain business and attract additional volume by decreasing the marginal price of transfers to a fee closer to the Reserve Banks’ marginal cost. The decrease in the marginal price of transfers is consistent with the Federal Reserve’s objectives to foster efficiency in the payment systems and to improve the efficiency of Reserve Bank services. • With the 2011 fees, the price index for the Fedwire Funds and National Settlement Services will have increased 28 percent since 2001. Fedwire Securities • The Reserve Banks will retain fees at their current levels. • With the 2011 fees, the price index for the Fedwire Securities Service will have decreased 14 percent since 2001. 5. 2011 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 2010, the price index for all Reserve Bank priced services is projected to decrease 3 percent in 2011. The price index for total check services is projected to decrease approximately 8 percent. The price index for Check 21 services is projected to decrease approximately 17 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 46 percent. The price index for electronic payment services, which include the FedACH Service, Fedwire Funds and National Settlement Services, and Fedwire Securities Service, is projected to increase approximately 3 percent. For the period 2001 to 2011, the price index for all priced services is expected to increase 68 percent. In comparison, for the period 2001 to 2009, the GDP price index increased 21 percent. E:\FR\FM\03NON1.SGM 03NON1 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices B. Private Sector Adjustment Factor— In March 2009, the Board requested comment on proposed changes to the methodology for calculating the PSAF.6 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 pricedservices 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 balances held by depository institutions at the Reserve Banks and the anticipated consequent decline in balances held by depository institutions at Reserve Banks for clearing priced-services transactions (clearing balances). Since the implementation of the payment of interest on reserve balances, clearing balances have not declined as rapidly as originally anticipated and remain significant. Between the October 2008 implementation of the payment of 6 74 FR 15481–15491 (Apr. 6, 2009). VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 interest on reserve balances and January 2009, the total level of clearing balances held by depository institutions decreased approximately $2 billion, from $6.5 billion to $4.5 billion. During the first half of 2009, clearing balance levels were nearly flat at approximately $4.5 billion. Since mid-2009, clearing balances have declined moderately each month, and as of the end of July 2010, clearing balances were $2.6 billion. As a result of the relative significance of the remaining balances, the Board continued to use the correspondent bank model for the 2010 PSAF, and will continue using the correspondent bank model for the 2011 PSAF.7 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 7 The Board is currently analyzing further the proposed publicly traded firm model. PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 principles that apply to commercialentity financial statements apply to the relevant elements in the priced services pro forma financial statements. The portion of Federal Reserve assets that will be used to provide priced services during the coming year is determined using information 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, other long-term liabilities, and equity are not sufficient to fund long-term assets.8 Short-term debt is imputed only when other shortterm 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 may be 8 Core clearing balances, currently $1 billion, are considered the portion of the balances that has remained stable over time without regard to the magnitude of actual clearing balances. E:\FR\FM\03NON1.SGM 03NON1 EN03NO10.000</GPH> jlentini on DSKJ8SOYB1PROD with NOTICES 67734 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES partially funded from core clearing balances. Imputed equity is set to meet 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.9 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 riskfree 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. 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 50 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 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. 9 As shown in table 7, 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. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 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.10 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.11 A return on the imputed reserve requirement, which is based on the level of clearing balances on the pro forma balance sheet, is imputed to reflect the return that would be earned on a required reserve balance held at a Reserve Bank. 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 2011 projected NICB are based on July 2010 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. NICB is projected to be $1.2 million for 2011, including earnings on imputed reserve requirements.12 The imputed rate is equal to the three-month Treasury bill rate with no constant spread due to the results of the interest rate sensitivity analysis. See the ‘‘Analysis of the 2011 PSAF’’ section for more information on the interest rate 10 Reserve requirements are the amount of funds that a depository institution must hold, in the form of vault cash or deposits with Federal Reserve Banks, in reserve against specified deposit liabilities. The dollar amount of a depository institution’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 10 percent, which is applied to the amount of clearing balances held with the Reserve Banks. 11 The allowed portfolio of investments is comparable to a bank holding company’s investment holdings, such as short-term Treasury securities, government agency securities, federal funds, commercial paper, long-term corporate bonds, and money market funds. As shown in table 7, the investments imputed for 2011 are threemonth Treasury bills and federal funds. 12 The 2010 NICB was initially budgeted to be $14.5 million and is now estimated at $8.0 million. The decrease in NICB is due to a decrease in clearing balance levels. PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 67735 sensitivity analysis results and the effect on the 2011 NICB. 2. Calculating Cost Recovery—The PSAF and NICB are incorporated into the projected and actual annual costrecovery calculations for Reserve Bank priced services. 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 PSAF derived during the price-setting process with only minimal adjustments for actual rates or balance levels.13 Beginning in 2009, in light of the uncertainty about the long-term effect that the payment of interest on reserve balances would have on the level of clearing balances, the Board adjusts the PSAF used in the actual cost-recovery calculation to reflect the actual clearing balance levels maintained throughout the year. 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 during the year when calculating actual priced services cost recovery. 3. Analysis of the 2011 PSAF—The decrease in the 2011 PSAF is due primarily to a reduction in the level of imputed equity associated with a decrease in assets and clearing balances. Projected 2011 Federal Reserve priced-services assets, reflected in table 3, have decreased $1,844.0 million, mainly due to a decline in imputed investments in marketable securities of $1,496.1 million. This reduction stems from the decline in clearing balances held by depository institutions at Reserve Banks. The priced services balance sheet includes projected clearing balances of $2,600.3 million for 2011, which represents a decrease of $2,231.2 million from the amount of clearing balances on the balance sheet for the budgeted 2010 PSAF. Because of the continued uncertainty regarding the level of clearing balances in an intereston-reserves environment, the actual PSAF costs used in cost-recovery calculations will continue to be based on the actual levels of clearing balances held throughout 2011. Credit float, which represents the difference between items in process of collection and deferred credit items, increased from $1,200.0 million in 2010 13 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. E:\FR\FM\03NON1.SGM 03NON1 67736 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices to $1,800.0 million in 2011.14 The increase is primarily a result of credit float generated by a greater use of Check 21 deferred-availability products. As previously mentioned, clearing balances are available as a funding source for priced-services assets. As shown in table 4, in 2011, $15.5 million in clearing balances is used as a funding source for short-term assets. Long-term liabilities and equity exceed long-term assets by $23.8 million; therefore, no core clearing balances are used to fund long-term assets. The Board uses an interest rate sensitivity analysis to ensure that the interest rate risk of the priced services balance sheet, and its effect on cost recovery, are appropriately managed and that the priced services long-term assets are appropriately funded with long-term liabilities and equity. The interest rate sensitivity analysis measures the relationship between rate sensitive assets and liabilities when they reprice as a result of a change in interest rates.15 If a 200 basis point increase or decrease in interest rates changes priced services cost recovery by more than 2 percentage points, rather than using core clearing balances to fund long-term assets, long-term debt is imputed. The interest rate sensitivity analysis shown in table 5 indicates that a 200 basis point decrease in rates decreases cost recovery 5.1 percentage points, while an increase of 200 basis points in rates increases cost recovery 4.9 percentage points. The greater-than-twopercentage-point effect on cost recovery is the result of a large gap between rate- sensitive assets and liabilities, and the relationship to priced services net income. The gap is caused by an increase in rate sensitive assets, specifically, the imputed federal funds investment needed to offset projected level of credit float in 2011. The results of the analysis have the following effects on the 2011 PSAF and NICB: • Generally, the results of the interest rate sensitivity analysis indicate when long-term debt should be imputed rather than using core clearing balances to fund long-term assets. The requirement to impute debt remedies an asset mismatch when too many clearing balances (rate sensitive liabilities) are being used to fund long-term assets and there is a need for another funding source (i.e. long-term debt). For the 2011 PSAF, however, the mismatch arises from the level of credit float rather than the use of clearing balances to fund long-term assets. If debt were to be imputed for the 2011 PSAF, clearing balances now used to finance assets would be invested in rate sensitive assets. Therefore, imputing debt would cause the gap between interest-ratesensitive assets and liabilities to widen further, resulting in an even greater effect on cost recovery than shown in table 5. Accordingly, the Board will not impute debt for the 2011 PSAF. Going forward, imputed debt will be limited to the amount of clearing balances used to finance long-term assets. (See table 4 for the portion of clearing balances used to fund priced-services assets.) • Because of the heightened cost recovery sensitivity to interest rate fluctuations, the investment of clearing balances is limited to three-month Treasury bills (with no additional imputed constant spread). As shown in table 3, the amount of equity imputed for the 2011 PSAF is $277.2 million, a decrease of $92.2 million from the imputed equity for 2010. In accordance with FAS 158 [ASC 715], this amount includes an accumulated other comprehensive loss of $343.2 million. Both the capital-tototal-assets ratio and the capital-to-riskweighted-assets ratio meet or exceed the regulatory requirements for a wellcapitalized depository institution. Equity is calculated as 5 percent of total assets, and the ratio of capital to riskweighted assets exceeds 10 percent.16 The Reserve Banks imputed an FDIC assessment for the priced services based on the FDIC’s proposed assessment rates and the level of clearing balances held at Reserve Banks.17 For 2011, the FDIC assessment is imputed at $5.3 million, compared with an FDIC assessment of $9.6 million in 2010. Table 6 shows the imputed PSAF elements, including the pretax ROE and other required PSAF costs, for 2010 and 2011. The $3.4 million decrease in ROE is caused by a lower amount of imputed equity, slightly offset by a higher target ROE rate. Imputed sales taxes decreased from $5.2 million in 2010 to $4.2 million in 2011. The effective income tax rate used in 2011 decreased to 32.4 percent from 33.1 percent in 2010. The priced services portion of the Board’s expenses decreased $2.0 million, from $7.2 million in 2010 to $5.2 million in 2011. TABLE 3—COMPARISON OF PRO FORMA BALANCE SHEETS FOR FEDERAL RESERVE PRICED SERVICES 18 [Millions of dollars—projected average for year] 2011 jlentini on DSKJ8SOYB1PROD with NOTICES Short-term assets: Imputed reserve requirement on clearing balances ............................................................. Receivables .......................................................................................................................... Materials and supplies .......................................................................................................... Prepaid expenses ................................................................................................................. Items in process of collection 19 ........................................................................................... Total short-term assets ................................................................................................. Imputed investments .................................................................................................................... Long-term assets: Premises 20 ........................................................................................................................... Furniture and equipment ...................................................................................................... Leasehold improvements and long-term prepayments ........................................................ Prepaid pension costs .......................................................................................................... Prepaid FDIC asset .............................................................................................................. 14 Credit float occurs when the Reserve Banks present transactions to the paying bank prior to providing credit to the depositing bank. 15 Interest rate sensitive assets and liabilities are defined as those balances that will reprice in a year. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 16 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 PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 2010 Change $440.0 41.4 1.5 7.6 300.0 $603.1 45.9 0.9 23.2 520.0 $(163.1) (4.5) 0.6 (15.6) (220.0) 790.7 3,968.6 1,193.1 5,464.7 (402.6) (1,496.1) 173.1 43.2 68.2 299.8 10.9 235.4 62.1 60.3 148.9 24.6 (62.3) (18.9) 7.9 150.9 (13.7) equity at 5 percent of assets, as indicated previously, until the regulators announce a final ruling. 17 For information on the proposed FDIC assessment rates, see http://www.fdic.gov/news/ news/press/2010/pr10229.html. E:\FR\FM\03NON1.SGM 03NON1 67737 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices TABLE 3—COMPARISON OF PRO FORMA BALANCE SHEETS FOR FEDERAL RESERVE PRICED SERVICES 18—Continued [Millions of dollars—projected average for year] 2011 2010 Change Deferred tax asset ................................................................................................................ 189.7 198.9 (9.2) Total long-term assets ................................................................................................... 784.9 730.2 54.7 Total assets ............................................................................................................ 5,544.0 7,388.0 (1,844.0) Short-term liabilities 21: Clearing balances ................................................................................................................. Deferred credit items 19 ........................................................................................................ Short-term payables ............................................................................................................. 2,600.3 2,100.0 35.0 4,831.5 1,720.0 59.8 (2,231.2) 380.0 (24.8) Total short-term liabilities .............................................................................................. Long-term liabilities 21 Postemployment/postretirement benefits liability 22 .............................................................. 4,735.3 6,611.3 (1,876.0) 531.5 407.3 124.2 Total liabilities ................................................................................................................ Equity 23 ....................................................................................................................................... 5,266.8 277.2 7,018.6 369.4 (1,751.8) (92.2) Total liabilities and equity ..................................................................................................... 5,544.0 7,388.0 (1,844.0) TABLE 4—PORTION OF CLEARING BALANCES USED TO FUND PRICED-SERVICES ASSETS [Millions of dollars] 2011 A. Short-term asset financing Short-term assets to be financed: Receivables ....................................................................................... Materials and supplies ....................................................................... Prepaid expenses .............................................................................. Total short-term assets to be financed ...................................... Short-term funding sources. Short-term payables .......................................................................... Portion of short-term assets funded with clearing balances 24 ......... B. Long-term asset financing Long-term assets to be financed: Premises ............................................................................................ Furniture and equipment ................................................................... Leasehold improvements and long-term prepayments ..................... Prepaid pension costs ....................................................................... Prepaid FDIC asset ........................................................................... Deferred tax asset ............................................................................. 2010 $41.4 1.5 7.6 $45.9 0.9 23.2 50.5 70.0 35.0 59.8 15.5 10.2 173.1 43.2 68.2 299.8 10.9 189.7 235.4 62.1 60.3 148.9 24.6 198.9 Total long-term assets to be financed ....................................... Long-term funding sources: Postemployment/postretirement benefits liability .............................. Imputed equity 25 ............................................................................... 784.9 730.2 531.5 277.2 407.3 369.4 Total long-term funding sources ................................................ Portion of long-term assets funded with core clearing balances 24 ......... 808.7 776.7 0.0 15.5 jlentini on DSKJ8SOYB1PROD with NOTICES C. Total clearing balances used for funding priced-services assets ............... 18 The 2010 PSAF values in tables 3, 4, and 6 reflect the budgeted 2010 PSAF of $50.2 million approved by the Board in October 2009. 19 Represents float that is directly estimated at the service level. 20 Includes the allocation of Board of Governors assets to priced services of $0.7 million for 2011 and $0.9 million for 2010. 21 No debt is imputed because clearing balances are a funding source. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 22 Includes the allocation of Board of Governors liabilities to priced services of $0.5 million for 2011 and $0.4 million for 2010. 23 Includes an accumulated other comprehensive loss of $407.7 million for 2010 and $343.2 million for 2011, which reflects 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. 24 Clearing balances shown in table 3 are available for financing priced-services assets. Using these PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 0.0 10.2 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 $1 billion in clearing balances is available for this purpose in 2010 and 2011, 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. 25 See table 6 for calculation of required imputed equity amount. E:\FR\FM\03NON1.SGM 03NON1 67738 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices TABLE 5—2011 INTEREST RATE SENSITIVITY ANALYSIS 26 [Millions of dollars] Rate insensitive Rate sensitive Assets: Imputed reserve requirement on clearing balances ............................................................. Imputed investments ............................................................................................................ Receivables .......................................................................................................................... Materials and supplies .......................................................................................................... Prepaid expenses ................................................................................................................. Items in process of collection ............................................................................................... Long-term assets .................................................................................................................. $41.4 1.5 7.6 300.0 784.9 $440.0 3,968.6 41.4 1.5 7.6 300.0 784.9 1,135.4 5,544.0 2,100.0 35.0 531.5 2,600.3 2,100.0 35.0 531.5 2,666.5 5,266.8 200 basis point decrease in rates 200 basis point increase in rates Asset yield ($4,408.6 × rate change) ................................................................................... Liability cost ($2,600.3 × rate change) ................................................................................. $(88.2) (52.0) $88.2 52.0 Effect of 200 basis point change .................................................................................. (36.2) 36.2 2011 budgeted revenue ....................................................................................................... Effect of change ................................................................................................................... 497.6 (36.2) 497.6 36.2 Revenue adjusted for effect of interest rate change .................................................... 461.4 533.8 2011 budgeted total expenses ............................................................................................. 2011 budgeted PSAF ........................................................................................................... Tax effect of interest rate change ($ change × 32.4%) ....................................................... 443.4 44.3 (11.7) 443.4 44.3 11.7 Total recovery amounts ................................................................................................. 476.0 499.4 Recovery rate before interest rate change .......................................................................... Recovery rate after interest rate change ............................................................................. Effect of interest rate change on cost recovery 27 ............................................................... 102.0% 96.9% (5.1)% 102.0% 106.9% 4.9% Total assets ................................................................................................................... Liabilities: Clearing balances ................................................................................................................. Deferred credit items ............................................................................................................ Short-term payables ............................................................................................................. Long-term liabilities ............................................................................................................... Total liabilities ................................................................................................................ $440.0 3,968.6 Total 4,408.6 2,600.3 2,600.3 Rate change results: TABLE 6—DERIVATION OF THE 2011 AND 2010 PSAF [Millions of dollars] 2011 jlentini on DSKJ8SOYB1PROD with NOTICES A. Imputed elements Short-term debt 28 ..................................................... Long-term debt 29 ...................................................... Equity Total assets from table 3 ................................... Required capital ratio 30 ..................................... $0.0 0.0 VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 $7,388.0 5% $277.2 $369.4 N/A N/A N/A N/A and the effect on cost recovery of a change in interest rates of up to 200 basis points. 27 The effect of a potential change in rates is greater than a two percentage point change in cost recovery; however, no long-term debt is imputed for PO 00000 $0.0 0.0 $5,544.0 5% Total equity ................................................. B. Cost of capital 1. Financing rates/costs Short-term debt .................................................. Long-term debt .................................................. 26 The interest rate sensitivity analysis evaluates the level of interest rate risk presented by the difference between rate-sensitive assets and ratesensitive liabilities. The analysis reviews the ratio of rate-sensitive assets to rate-sensitive liabilities 2010 Frm 00057 Fmt 4703 Sfmt 4703 2011 because the priced services have adequate funding sources. See the ‘‘Analysis of the 2011 PSAF’’ section for more information on the interest rate sensitivity analysis results and its effect on the 2011 PSAF and NICB. E:\FR\FM\03NON1.SGM 03NON1 67739 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices TABLE 6—DERIVATION OF THE 2011 AND 2010 PSAF—Continued [Millions of dollars] 2011 Pretax return on equity 31 .................................. 2. Elements of capital costs Short-term debt .................................................. Long-term debt .................................................. Equity ................................................................. 2010 8.9% 7.6% $0.0 0.0 24.8 $277.2×8.9% = $0.0 0.0 28.2 $369.4×7.6% = $24.8 C. Other required PSAF costs Sales taxes ............................................................... FDIC assessment ..................................................... Board of Governors expenses .................................. $28.2 $4.2 5.3 5.2 $5.2 9.6 7.2 14.7 22.0 D. Total PSAF .................................................................. $39.5 $50.2 As a percent of assets .............................................. As a percent of expenses 32 ..................................... E. Tax rates ..................................................................... 0.7% 8.9% 32.4% 0.7% 9.6% 33.1% TABLE 7—COMPUTATION OF 2011 CAPITAL ADEQUACY FOR FEDERAL RESERVE PRICED SERVICES [Millions of dollars] Assets Risk weight Weighted assets Imputed reserve requirement on clearing balances .................................................................... Imputed investments: 3-month Treasury bills 33 ...................................................................................................... Federal funds 34 .................................................................................................................... $440.0 0.0 $0.0 2,168.6 1,800.0 0.0 0.2 0.0 360.0 Total imputed investments ............................................................................................ Receivables ................................................................................................................................. Materials and supplies ................................................................................................................. Prepaid expenses ........................................................................................................................ Items in process of collection ...................................................................................................... Premises ...................................................................................................................................... Furniture and equipment ............................................................................................................. Leasehold improvements and long-term prepayments ............................................................... Prepaid pension costs ................................................................................................................. Prepaid FDIC asset ..................................................................................................................... Deferred tax asset ....................................................................................................................... 3,968.6 41.4 1.5 7.6 300.0 173.1 43.2 68.2 299.8 10.9 189.7 0.2 1.0 1.0 0.2 1.0 1.0 1.0 1.0 1.0 1.0 360.0 8.3 1.5 7.6 60.0 173.1 43.2 68.2 299.8 10.9 189.7 Total ...................................................................................................................................... 5,544.0 Imputed equity for 2011 ............................................................................................................... Capital to risk-weighted assets .................................................................................................... Capital to total assets .................................................................................................................. $277.2 22.7% 5.0% 1,222.3 jlentini on DSKJ8SOYB1PROD with NOTICES 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. 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 28 No short-term debt is imputed because clearing balances are a funding source for those assets that are not financed with short-term payables. 29 No long-term debt is imputed because core clearing balances are a funding source. 30 Based on the regulatory requirements for a well-capitalized institution for the purpose of assessing insurance premiums. 31 The 2011 ROE is equal to a risk-free rate plus a risk premium (beta * market risk premium). The 2011 after-tax CAPM ROE is calculated as 0.16% + (1 * 5.88%) = 6.04%. Using a tax rate of 32.4%, the after-tax ROE is converted into a pretax ROE, which results in a pretax ROE of (6.04%/(1–32.4%)) = 8.9%. 32 System 2011 budgeted priced services expenses less shipping and float are $441.7 million. 33 The imputed investments are similar to those for which rates are available on the Federal Reserve’s H.15 statistical release, which can be located at http://www.federalreserve.gov/releases/ h15/data.htm. 34 The investments are computed from the amounts arising from the collection of items prior to providing credit according to established availability schedules. These imputed amounts are invested in federal funds. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 E:\FR\FM\03NON1.SGM 03NON1 67740 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices earnings credit calculation uses a percentage discount on a rolling 13week average of the annualized coupon equivalent yield of three-month Treasury bills in the secondary market. Earnings credits, which are calculated monthly, can be used only to offset charges for priced services and expire if not used within one year.35 D. Check Service—Table 8 shows the 2009, 2010 estimated, and 2011 budgeted cost recovery performance for the commercial check service. TABLE 8—CHECK SERVICE PRO FORMA COST AND REVENUE PERFORMANCE [$ millions] 1 Revenue Year 2009 ..................................................................................... 2010 (estimate) .................................................................... 2011 (budget) ....................................................................... 1. 2010 Estimate—For 2010, the Reserve Banks estimate that the check service will recover 103.7 percent of total expenses and targeted ROE, compared with the budgeted recovery rate of 94.7 percent. The Reserve Banks expect to recover all actual and imputed costs of providing check services and earn a net income of $21.1 million (see table 8). The higher-than-budgeted cost recovery is the result of higher projected revenue of $13.3 million. In paper services, revenue is higher than expected because of mid-year price increases and higher-than-budgeted exception item volume. In electronic services, the higher revenue is due to greater use of products with later deposit deadlines and volume destined to higher-priced paper endpoints. Expenses are projected to be $16.1 million lower than expected due primarily to the full-year effects of cost 2 Total expense 490.9 358.7 279.2 3 Net income (ROE) [1–2] 5 Recovery rate after targeted ROE [1/(2+4)] (percent) 14.4 8.2 9.3 92.8 103.7 102.8 ¥23.7 21.1 17.0 514.6 337.6 262.2 savings associated with the earlier-thanexpected elimination of transportation for paper checks among Reserve Bank offices, the transition from courier service to overnight delivery service for paper check presentments, and the accelerated restructuring of the Reserve Banks’ check processing infrastructure. The general decline in the number of checks written continues to influence the decline in checks collected by the Reserve Banks. Through August, total forward check volume and return check volume is 9 percent and 16 percent lower, respectively, than the same period last year. For full-year 2010, the Reserve Banks estimate that their total forward check collection volume will decline nearly 10 percent and return check volume will decline 15 percent from 2009 levels.36 The proportion of checks deposited and presented electronically has grown steadily in 2010 (see table 9). The Reserve Banks 4 Targeted ROE expect that year-end 2010 FedForward deposit and FedReceipt presentment penetration rates will reach 99.7 percent and 98.9 percent, respectively. The Reserve Banks also expect that year-end 2010 FedReturn and FedReceipt Return penetration rates will reach 96.2 percent and 80.0 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’ backoffice investments to apply electronics to the check return process. To increase the adoption of FedReceipt Return, the Reserve Banks have introduced a PDF delivery option for lower-volume receivers of returned checks. TABLE 9—CHECK 21 PRODUCT PENETRATION RATES a [percent] b Forward deposit volume FedForward Full-year 2005 2006 2007 2008 2009 2010 2011 ................................. ................................. ................................. ................................. ................................. (estimate) ................ (budget) ................... Return volume c FedReceipt Year-end 1.9 14.4 42.6 76.8 96.5 99.4 99.7 Full-year 5.0 26.0 57.9 91.8 98.6 99.7 99.8 <0.1 1.0 12.5 41.5 80.4 95.8 99.7 FedReturn Year-end Full-year 0.1 3.5 22.7 60.7 91.7 98.9 99.7 4.0 19.7 37.8 58.4 81.2 94.3 97.3 FedReceipt return Year-end 6.9 30.5 45.4 72.0 91.2 96.2 98.2 Full-year N/A <0.1 0.5 6.4 34.1 65.4 95.0 Year-end N/A <0.1 1.1 13.2 50.8 80.0 99.7 jlentini on DSKJ8SOYB1PROD with NOTICES 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. 35 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 VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 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. PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 36 Total Reserve Bank forward check volumes are expected to drop from roughly 8.6 billion in 2009 to 7.8 billion in 2010. Total Reserve Bank return check volumes are expected to drop from roughly 87.6 million in 2009 to 74.4 million in 2010. E:\FR\FM\03NON1.SGM 03NON1 67741 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices 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. c The Reserve Banks began offering PDF delivery of returned checks in 2009. For 2011 budget, volume associated with the delivery of returned checks in PDF files is included in FedReceipt Return volume. Paper forward-collection volume is expected to decline nearly 85 percent and paper return-check volume is expected to decline 74 percent for the full year (see table 10). TABLE 10—PAPER CHECK PRODUCT VOLUME CHANGES [Percent] Budgeted 2010 change Estimated 2010 change ¥84 ¥76 ¥85 ¥74 Forward Collection ................................................................................................................... Returns .................................................................................................................................... 2. 2011 Pricing—In 2011, the Reserve Banks project that the check service will recover 102.8 percent of total expenses and targeted ROE. Revenue is projected to be $279.2 million, a decline of $79.5 million from 2010. This decline is driven largely by an increasing proportion of checks being deposited and presented electronically and by projected reductions in both forward check collection and return check volume. Total expenses for the check service are projected to be $262.2 million, a decline of $75.2 million from 2010. The reduction in check costs is driven primarily by the full-year effects of cost savings associated with the consolidation of Reserve Bank checkprocessing sites, associated staff reductions, and reductions in transportation costs, as well as indirect support and overhead cost savings.37 For 2011, the Reserve Banks estimate that their total forward check volume will decline nearly 10 percent (see table 11). FedForward and traditional paper check volumes are expected to decline 10 percent and 60 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 total return volume will decline 14 percent, as FedReturn volume declines 11 percent and traditional paper returns decline 59 percent. TABLE 11—CHECK VOLUMES 2011 Budgeted volume (millions of items) Growth from 2010 estimate (percent) FedForward .............................................................................................................................. Traditional paper forward ......................................................................................................... 6,960 18 ¥10 ¥60 Total forward ..................................................................................................................... 6,978 ¥10 FedReturn ................................................................................................................................ Traditional paper return ........................................................................................................... 62 2 ¥11 ¥59 Total return ....................................................................................................................... 64 ¥14 jlentini on DSKJ8SOYB1PROD with NOTICES The Reserve Banks will reduce FedForward fees, on average, 8 percent for checks presented electronically and increase fees 50 percent for checks presented as substitute checks (see table 12). The average fee paid by FedForward depositors will decline by 14 percent from the average 2010 fee, as the number of depository institutions that accept their presentments electronically increases. FedReturn fees, on average, will remain flat for checks returned electronically through FedLine, decrease 30 percent for checks returned electronically via PDF, and increase 14 percent for substitute check endpoints. The average fee paid by depository institutions using FedReturn will decrease 20 percent as the number of institutions that accept their returns electronically increases. The Reserve Banks project that less than 1 percent of check forward deposit volume will be in traditional paperbased products. Accordingly, for the traditional paper check products, the Reserve Banks will increase forward paper check collection fees 181 percent and increase paper return fees 81 percent (see table 12). These increases reflect the high costs of handling the small remaining paper volume and are designed to encourage the continued adoption of Check 21 services. 37 In response to both the decline in check volume and the electronic check-clearing methods enabled by Check 21, the Reserve Banks fundamentally restructured their check-processing operations and reduced the number of sites at which they process paper checks—from 45 in late 2003 to one in 2010. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 E:\FR\FM\03NON1.SGM 03NON1 67742 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices TABLE 12—2011 FEE CHANGES 2010 Average fee FedForward Cash letter fee .................................................................................. Electronic endpoints ......................................................................... Substitute check endpoints .............................................................. Weighted average fee a,b ........................................................... FedReturn Cash letter fee .................................................................................. Electronic endpoints. FedLine ...................................................................................... PDF ........................................................................................... Substitute check endpoints .............................................................. Weighted average fee a,b ........................................................... Paper Forward collection ............................................................................ Returns ............................................................................................. Fee change (percent) 2011 Average fee $3.09 0.0204 0.1013 0.0252 $3.18 0.0189 0.1514 0.0216 3 ¥8 50 ¥14 3.51 3.51 0 0.4282 1.2151 1.2151 0.8183 0.4296 0.85 1.39 0.6515 <1 ¥30 14 ¥20 0.4111 5.7180 1.1537 10.3651 181 81 a The weighted average fees in this table represent combined cash letter and per-item fees for each product type, whereas the electronic and substitute check endpoints reflect only per item fees. b The weighted average fees for FedForward and FedReturn products are dependent on electronic receipt penetration rates. In this table, the weighted average fees are based on electronic receipt penetration rates estimated for full-year 2010 and projected for full-year 2011. Risks to the Reserve Banks’ ability to achieve budgeted 2011 cost recovery for the check service include greater-thanexpected check volume losses to correspondent banks, aggregators, and direct exchanges, which would result in lower-than-anticipated revenue, and cost overruns associated with unanticipated problems with the Reserve Banks’ Check 21 platform. E. FedACH Service—Table 13 shows the 2009, 2010 estimate, and 2011 budgeted cost-recovery performance for the commercial FedACH service. TABLE 13—FEDACH SERVICE PRO FORMA COST AND REVENUE PERFORMANCE [$ millions] Year 1 Revenue jlentini on DSKJ8SOYB1PROD with NOTICES 2009 ............................................................................... 2010 (estimate) .............................................................. 2011 (budget) ................................................................. 1. 2010 Estimate—The Reserve Banks estimate that the FedACH service will recover 101.9 percent of total expenses and targeted ROE, compared with the budgeted recovery rate of 99.9 percent. The Reserve Banks expect to recover all actual and imputed costs of providing FedACH services and earn net income of $4.7 million. Through August, FedACH commercial origination volume is 3 percent higher than it was during the same period last year. For the full year, the Reserve Banks estimate that volume will grow nearly 3 percent. 2. 2011 Pricing—The Reserve Banks project that the FedACH service will recover 100.4 percent of total expenses and targeted ROE in 2011. Total revenue is budgeted to decrease $0.2 million VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 2 Total expense 94.7 110.6 110.4 3 Net income (ROE) [1–2] 98.6 105.9 106.1 from the 2010 estimate, primarily as a result of reductions in net income on clearing balances and electronic connection revenue, which is offset in part by an increase in product revenue. Total expenses are budgeted to increase $0.2 million from the 2010 estimate. The Reserve Banks expect both FedACH commercial origination and receipt volume to grow approximately 3 percent in 2011, consistent with 2010 volume trends. Moreover, the sustained growth of direct exchanges, bank merger activity, and competition from the private-sector ACH operator, Electronic Payments Network (EPN), is expected to limit FedACH volume growth. The Reserve Banks will maintain processing and service fees at current levels with two exceptions. The Reserve PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 4 Targeted ROE ¥3.8 4.7 4.3 2.9 2.7 3.8 5 Recovery rate after targeted ROE [1/(2+4)] (percent) 93.4 101.9 100.4 Banks will increase the addenda record fees for origination and receipt transactions from $0.0013 to $0.0015 and the monthly information extract file fee from $50 to $75. Risks to meeting the Reserve Banks’ budgeted 2011 cost recovery include lower-than-anticipated volume growth due to competition from EPN, increases in direct ACH exchanges, increased onus volume due to bank mergers, and unanticipated problems with technology upgrades that result in cost overruns. F. Fedwire Funds and National Settlement Services—Table 14 shows the 2009, 2010 estimate, and 2011 budgeted cost-recovery performance for the Fedwire Funds and National Settlement Services. E:\FR\FM\03NON1.SGM 03NON1 67743 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices TABLE 14—FEDWIRE FUNDS AND NATIONAL SETTLEMENT SERVICES PRO FORMA COST AND REVENUE PERFORMANCE [$ millions] Year 1 Revenue jlentini on DSKJ8SOYB1PROD with NOTICES 2009 ......................................................................... 2010 (estimate) ........................................................ 2011 (budget) ........................................................... 1. 2010 Estimate—The Reserve Banks estimate that the Fedwire Funds and National Settlement Services will recover 100.2 percent of total expenses and targeted ROE, compared with a 2010 budgeted recovery rate of 100.9 percent. The lower-than-expected recovery rate is attributed to lower-thanexpected revenues from transaction volume and NICB. Through August, online Fedwire Funds volume was down 2 percent from the same period in 2009. For full-year 2010, the Reserve Banks estimate that online Fedwire Funds volume will decline 2 percent, compared to a budgeted decline of less than 1 percent. With respect to the National Settlement Service, the Reserve Banks estimate that the volume of settlement files will decrease 32 percent and the volume of settlement file entries will increase 11 percent for full-year 2010. The decline in settlement files and increase in entries is due primarily to the continued attrition and consolidation of local check clearinghouse arrangements. 2. 2011 Pricing—The Reserve Banks expect the Fedwire Funds and National Settlement Services to recover 101.0 percent of total expenses and targeted ROE in 2011. The Reserve Banks project total expenses to increase $3.3 million from the 2010 estimate. This increase is primarily due to pension costs and increasing amortization costs of the Fedwire technology migration. The Reserve Banks project total revenue to increase $4.9 million from the 2010 estimate due to increases in electronic connection revenue and the implementation of new fees and a new volume-based transfer fee structure for the Fedwire Funds Service, in addition to fee increases for the National Settlement Service. The Reserve Banks will implement two new fees for the Fedwire Funds Service. First, an end-of-day per-item surcharge of $0.18 will apply to the sender of Fedwire Funds transfers processed by the Reserve Banks after VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 2 Total expense 65.6 79.1 84.0 3 Net income (ROE) [1–2] 69.3 77.1 80.3 5 p.m. ET.38 Second, a $10 monthly fee will be charged for the usage of the import/export feature of the FedLine Advantage electronic access package for the Fedwire Funds Service.39 This feature, currently provided by the Reserve Banks for no additional charge, allows FedLine Advantage customers to import (export) an external file with multiple transactions into (from) the Fedwire Funds Service. The Reserve Banks will change the Fedwire Funds Service’s volume-based transfer fee structure to include incentive discounts based on customers’ historic volume. This change will increase the base price of transfers but will provide substantial discounts on these prices for a portion of customers’ expected volume. The change will be implemented in two parts. First, the existing fees for all volume tiers will increase by as much as 73 percent.40 Second, the Reserve Banks will apply an 80 percent discount on these new fees for the portion of a customer’s monthly online volume that exceeds 50 percent of its historic benchmark volume.41 The Reserve Banks expect online volumes for the Fedwire Funds Service to increase 1 percent in 2011 from 2010 estimates in response to this new fee 38 This fee is consistent with the Federal Reserve’s policy to discourage the concentration of payments late in the business day. 39 This fee is applied to customers that originate transfers through the FedLine Advantage electronic access channel and have activated the import/ export feature for the Fedwire Funds Service at any point during a given calendar month. 40 The fee for the first 14,000 transfers will increase to $0.52 from $0.30. The fee for the next 76,000 transfers will increase to $0.23 from $0.19. The fee for any additional transfers will increase to $0.13 from $0.09. 41 Historic benchmark volume will be based on a customer’s average daily activity over the previous five full calendar years, adjusted for the number of business days in the current month. If a customer has less than five full calendar years of previous activity, then the historic benchmark volume will be based on the daily activity for as many full calendar years of available data. If a customer has less than one full calendar year’s worth of prior activity, historic benchmark volume will be set retroactively at actual volume for the current month. PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 4 Targeted ROE ¥3.6 2.0 3.7 2.0 1.9 2.9 5 Recovery rate after targeted ROE [1/(2+4)] (percent) 92.1 100.2 101.0 structure and general expectations for improved economic conditions. The change in the volume-based transfer fees for the Fedwire Funds Service is consistent with the Reserve Banks’ objectives to identify stable sources of revenue to recover the high fixed costs of operating the service and to improve the service’s competitiveness in the wholesale payments market. The fee increases will produce more revenue from the relatively stable portion of a customer’s monthly online volume (i.e., the first 50 percent of a customer’s historic benchmark volume). The Reserve Banks expect these changes to improve their ability to retain existing business and attract new volume by aligning the marginal price of transfers for customers closer to the marginal cost of providing the service. The decrease in the marginal price of transfers is consistent with the Federal Reserve’s objective to foster efficiency in the payment systems and to improve the efficiency of Reserve Bank provided services. With respect to the National Settlement Service, the Reserve Banks will increase the settlement file fee from $18 to $20, and the settlement entry fee from $0.80 to $0.90.42 Settlement file and settlement entry volumes for the National Settlement Service are budgeted to decrease slightly in 2011 from 2010 estimates. G. Fedwire Securities Service—Table 15 shows the 2009, 2010 estimate, and 2011 budgeted cost recovery performance for the Fedwire Securities Service.43 42 The settlement file fee was last increased in 2010, from $14.00 to $18.00. The settlement entry fee was last changed in 2002, lowered from $0.95 to $0.80. 43 The Reserve Banks provide transfer services for securities issued by the U.S. Treasury, federal government agencies, government-sponsored enterprises, and certain international institutions. The priced component of this service, reflected in this notice, consists of revenues, expenses, and volumes associated with the transfer of all nonTreasury securities. For Treasury securities, the U.S. Treasury assesses fees for the securities transfer component of the service. The Reserve Banks assess a fee for the funds settlement E:\FR\FM\03NON1.SGM Continued 03NON1 67744 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices TABLE 15—FEDWIRE SECURITIES SERVICE PRO FORMA COST AND REVENUE PERFORMANCE [$ millions] Year 1 Revenue 2009 ......................................................................... 2010 (estimate) ........................................................ 2011 (budget) ........................................................... 2 Total expense 24.2 24.2 24.0 3 Net income (ROE) [1–2] 25.1 22.7 22.3 4 Targeted ROE ¥0.9 1.6 1.7 5 Recovery rate after targeted ROE [1/(2+4)] (percent) 0.7 0.6 0.8 93.8 104.3 103.8 jlentini on DSKJ8SOYB1PROD with NOTICES 1. 2010 Estimate—The Reserve Banks estimate that the Fedwire Securities Service will recover 104.3 percent of total expenses and targeted ROE, compared with a 2010 budgeted recovery rate of 103.9 percent. The higher-than-budgeted recovery rate is primarily attributable to lower-thanexpected pension costs and higher-thanexpected volume for Treasury securities.44 Through August, online securities volume is down almost 31 percent from the same period in 2009, due primarily to lower volume for agency securities. 2. 2011 Pricing—The Reserve Banks project that the Fedwire Securities Service will recover 103.8 percent of total expenses and targeted ROE in 2011. The Reserve Banks project that 2011 revenue and expense will decrease slightly from the 2010 estimate. For 2011, online securities volume is projected to remain flat from current 2010 estimates. The fees for the Fedwire Securities Service will remain unchanged from 2010. H. Electronic Access—The Reserve Banks allocate the costs and revenues associated with electronic access to the Reserve Banks’ priced services. There are currently six electronic access channels through which customers can access the Reserve Banks’ priced services: FedLine Direct ®, FedLine Command ®, FedLine Advantage ®, FedLine Web ®, FedMail ®, and FedPhone ®.45 The Reserve Banks package these channels into nine electronic access packages that are supplemented by a number of premium ` (or a la carte) access and accounting information options. 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 e-mail, while the FedLine Web packages offer FedMail e-mail and online attended access to a broad range of informational services, including cash services, FedACH services, and check services. The FedLine Advantage packages expand upon the FedLine Web informational service packages and offer attended access to transactional services: FedACH, Fedwire Funds, and Fedwire Securities. Unattended access packages are computer-to-computer, IP-based interfaces designed for medium- to highvolume customers. The FedLine Command package offers an unattended connection to FedACH, as well as most accounting information services. The final three packages are FedLine Direct packages that allow for unattended connections at one of three connection speeds to FedACH, Fedwire Funds, and Fedwire Securities transactional and information services and to most accounting information services. For 2011, the Reserve Banks will restructure their FedLine packages to better meet their customers’ needs for access options, delivery solutions, and information services. The Reserve Banks will offer redesigned versions of most FedLine packages. The more-robust versions will include access to certain value-added services with moderate price increases. The Reserve Banks will also increase fees for most of 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. component of a Treasury securities transfer; this component is not treated as a priced service. 44 Total operating costs are allocated between the U.S. Treasury and the Reserve Banks according to the volume of transfers for Treasury securities relative to non-Treasury securities. Through August, Treasury securities volume is 17 percent higher than budgeted and non-Treasury securities volume is 28 percent lower than budgeted, resulting in a greater-than-expected share of operating costs allocated to the U.S. Treasury. 45 FedLine Direct, FedLine Command, FedLine Advantage, FedLine Web, FedMail, and FedPhone are registered trademarks of the Federal Reserve Banks. These connections may also be used to access nonpriced services provided by the Reserve Banks. FedPhone is a free-access option. 46 Federal Reserve Regulatory Service (FRRS) 9– 1558. 47 An ODFI is subject to a $25 minimum fee on its origination volume; an RDFI that does not originate forward items is subject to a $15 minimum fee on its receipt volume. 48 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 EPN. 49 Receipt fees do not apply to items that the Reserve Banks send to EPN. 50 This per-item surcharge is in addition to the standard origination and input file processing fees for forward items. 51 This per-item discount is a reduction to the standard origination and input file processing fees for return items. 52 This per-item discount is a reduction to the standard receipt fees. 53 There is no fee for the first set of monitoring criteria for RTN or one company ID. 54 The account-servicing fee applies to routing numbers that have received or originated FedACH transactions. Institutions that receive only U.S. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 II. Analysis of Competitive Effect All operational and legal changes considered by the Board that have a substantial effect on payments system participants are subject to the competitive impact analysis described in the March 1990 policy, ‘‘The Federal Reserve in the Payments System.’’ 46 Under this policy, the Board assesses whether proposed changes would have a direct and material adverse effect on the ability of other service providers to compete effectively with the Federal Reserve in providing similar services because of differing legal powers or constraints or because of a dominant market position deriving from such legal differences. If any proposed changes create such an effect, the Board must further evaluate the changes to assess whether the 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. The Board projects that the 2011 fees, fee structures, and changes in service will not have a direct and material adverse effect on the ability of other service providers to compete effectively with the Reserve Banks in providing E:\FR\FM\03NON1.SGM 03NON1 67745 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices similar services. The fees should permit the Reserve Banks to earn a ROE that is comparable to overall market returns and provide for full cost recovery over the long run. FEDACH SERVICE 2011 FEE SCHEDULE [Effective January 3, 2011. Bold indicates changes from 2010 prices.] Fee jlentini on DSKJ8SOYB1PROD with NOTICES FedACH minimum monthly fee 47 ODFI ............................................................................................................................................................... RDFI ............................................................................................................................................................... Origination (per item or record): 48 Forward or return items in small files ............................................................................................................. Forward or return items in large files ............................................................................................................. Addenda record ............................................................................................................................................ Receipt (per item or record): 49 Forward item fees with volume-based discount (excluding FedACH SameDay service items) For the first 1,000,000 items per month ................................................................................................. For 1,000,001 to 25,000,000 items per month ....................................................................................... For more than 25,000,000 items per month ........................................................................................... Return items ................................................................................................................................................... Addenda record ............................................................................................................................................ FedACH SameDay Service Origination 50 51 Forward item in a small file ..................................................................................................................... Forward item in a large file ..................................................................................................................... Addenda record ..................................................................................................................................... Return item in a small file ....................................................................................................................... Return item in a large file ........................................................................................................................ Return addenda record ......................................................................................................................... Receipt 52 Forward item ........................................................................................................................................... Addenda record/return addenda record ............................................................................................. Return item .............................................................................................................................................. Risk Product: Risk origination monitoring criteria 53 Tier 1 (2–20 sets) .................................................................................................................................... Tier 2 (21–150 sets) ................................................................................................................................ Tier 3 (more than 150 sets) .................................................................................................................... Risk origination monitoring batch ................................................................................................................... FedEDI Plus: Defined report generated ............................................................................................................................... On demand report generated ......................................................................................................................... Monthly premier report ................................................................................................................................... Daily premier report ........................................................................................................................................ Secure delivery via e-mail .............................................................................................................................. Delivery via FedLine file access solution ....................................................................................................... Monthly fee (per routing number): Account servicing fee 54 ................................................................................................................................. FedACH settlement 55 .................................................................................................................................... Information extract file ................................................................................................................................. IAT Output File Sort ....................................................................................................................................... FedLine Web origination returns and notification of change (NOC) fee: 56 .......................................................... Voice response returns/NOC fee: 57 ...................................................................................................................... Automated NOC fee: 58 ......................................................................................................................................... Non-electronic input/output fee: 59 CD or DVD input/output ................................................................................................................................. Paper input/output .......................................................................................................................................... Facsimile exception returns/NOC 60 ............................................................................................................... Canadian cross-border fee: Item originated to Canada 61 .......................................................................................................................... Return received from Canada 62 .................................................................................................................... Trace of item at receiving gateway ................................................................................................................ Trace of item not at receiving gateway .......................................................................................................... Mexico service fee: Item originated to Mexico 61 ........................................................................................................................... government transactions or that elect to use the other operator exclusively are not assessed the account servicing fee. 55 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. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 56 The fee includes the transaction and addenda fees in addition to the conversion fee. 57 The fee includes the transaction and addenda fees in addition to the voice response fee. 58 The fee includes the notification of change processing fee. 59 Limited services are offered in contingency situations. PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 $25.00. 15.00. 0.0030. 0.0025. 0.0015. 0.0025. 0.0018. 0.0016 (all items). 0.0025. 0.0015. 0.0030. 0.0035. 0.0015. 0.0030. 0.0025. 0.0015. 0.0025. 0.0015. 0.0025. 8.00/set of criteria/month. 4.00/set of criteria/month. 1.00/set of criteria/month. 0.0025/batch. 0.20. 0.75. 10.00. 0.50. 0.20. 0.30. 37.00. 45.00. 75.00. 35.00. 0.30. 3.00. 0.15. 50.00. 50.00. 30.00. 0.62. 0.99. 5.50. 7.00. 0.67. 60 The fee includes the transaction fee in addition to the conversion fee. 61 This per-item surcharge is in addition to the standard domestic origination and input file processing fees. 62 This per-item surcharge is in addition to the standard domestic receipt fees. E:\FR\FM\03NON1.SGM 03NON1 67746 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices FEDACH SERVICE 2011 FEE SCHEDULE—Continued [Effective January 3, 2011. Bold indicates changes from 2010 prices.] Fee Return received from Mexico 62 ..................................................................................................................... Item trace ........................................................................................................................................................ A2R item originated to Mexico ....................................................................................................................... F3X item originated to Mexico ....................................................................................................................... Panama service fee: Item originated to Panama 61 ......................................................................................................................... Return received from Panama 62 ................................................................................................................... Item trace ........................................................................................................................................................ NOC ................................................................................................................................................................ Latin America (MFIC) service fee: Item originated to MFIC 61 .............................................................................................................................. Return received from MFIC 62 ........................................................................................................................ Item trace ........................................................................................................................................................ 0.91. 13.50. 3.45. 0.67. 0.72. 1.00. 7.00. 0.72. 4.40. 0.72. 5.00. FEDWIRE FUNDS AND NATIONAL SETTLEMENT SERVICES 2011 FEE SCHEDULE [Effective January 3, 2011. Bold indicates changes from 2010 Fee Schedule.] Fee Fedwire Funds Service Monthly participation fee ...................................................................................................................................................................... Basic volume-based transfer fee (originations and receipts) Per transfer for the first 14,000 transfers per month ............................................................................................................. Per transfer for additional transfers up to 90,000 per month ............................................................................................... Per transfer for every transfer over 90,000 per month .......................................................................................................... Volume-based transfer fee with the incentive discount (originations and receipts) 63 Per eligible transfer for the first 14,000 transfers per month ............................................................................................... Per eligible transfer for additional transfers up to 90,000 per month .................................................................................. Per eligible transfer for every transfer over 90,000 per month ............................................................................................. Surcharge for offline transfers (originations and receipts) .................................................................................................................. Surcharge for end-of-day transfers originations 64 ....................................................................................................................... $75.00 Monthly import/export fee 65 ............................................................................................................................................................. National Settlement Service 10.00 jlentini on DSKJ8SOYB1PROD with NOTICES Basic Settlement entry fee ................................................................................................................................................................... Settlement file fee ....................................................................................................................................................................... Surcharge for offline file origination ..................................................................................................................................................... Minimum monthly charge (account maintenance) 66 ........................................................................................................................... Special settlement arrangements 67 Fee per day .................................................................................................................................................................................. Basic transfer fee Transfer or reversal originated or received .................................................................................................................................. Surcharge Offline transfer or reversal originated or received ....................................................................................................................... Monthly maintenance fees Account maintenance (per account) ............................................................................................................................................ Issues maintained (per issue/per account) .................................................................................................................................. Claim adjustment fee ........................................................................................................................................................................... Joint custody fee .................................................................................................................................................................................. 63 The incentive discounts are applicable on the portion of a customer’s volume that exceeds 50 percent of their historic benchmark volume. Historic benchmark volume would be based on a customer’s average daily activity over the previous five full calendar years, adjusted for the number of business days in the current month. If a customer has less than five full calendar years of previous activity, then the historic benchmark volume would be based on the daily activity for as many full calendar years of available data. If a customer has VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 less than one full year calendar year’s worth of prior activity, historic benchmark volume would be set retroactively at actual volume for the current month. 64 This surcharge will apply to originators of transfers that are processed by the Reserve Banks after 5:00 p.m. ET. 65 This fee is applied to customers that originate transfers through the FedLine Advantage electronic access channel and have activated the import/ export feature for the Fedwire Funds Service at any point during a given calendar month. PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 0.52 0.23 0.13 0.104 0.046 0.026 40.00 0.18 0.90 20.00 40.00 60.00 150.00 0.35 60.00 36.00 0.40 0.60 40.00 66 This minimum monthly charge will only be assessed if total settlement charges during a calendar month are less than $60. 67 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. E:\FR\FM\03NON1.SGM 03NON1 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices 67747 ELECTRONIC ACCESS 2011 FEE SCHEDULE [Effective January 3, 2011. Bold prices indicate changes from 2010 Fee Schedule.] jlentini on DSKJ8SOYB1PROD with NOTICES Electronic Access Packages (monthly) Fee FedMail E-mail .................................................................................................................................................................................... FedLine Web (W3) Traditional .......................................................................................................................................................... Includes: FedMail e-mail FedLine Web with three individual subscriptions FedACH information services (includes RDFI file alert service) Check 21 services 68 Check 21 duplicate notification Cash management system basic—own report only Service charge information Account management information 69 End of day accounting file (PDF) FedLine Web (W5) Enhanced ........................................................................................................................................................... Includes: FedLine Web (W3) traditional package FedLine Web with five individual subscriptions FedACH risk management services FedACH EDI plus service via secure e-mail Check payor bank services Account management information FedLine Advantage (A5) Traditional ................................................................................................................................................ Includes: FedLine Web (W3) traditional package FedLine Web with five individual subscriptions FedACH transactions Fedwire funds transactions Fedwire securities transactions Fedwire cover payments Check payor bank services Account management information with intra-day search FedLine Advantage (A5) Enhanced ................................................................................................................................................. Includes: FedLine Advantage A5 traditional package FedLine Advantage with five individual subscriptions FedACH risk management services FedACH EDI via secure e-mail FedLine Command Enhanced .......................................................................................................................................................... Includes: FedLine Advantage enhanced package FedLine Advantage with five individual subscriptions FedLine Command with two certificates ACTS Report <20 subaccounts Statement of account spreadsheet file (SASF) FedLine Direct Traditional (D56) ...................................................................................................................................................... Includes: FedLine Advantage A5 traditional package with 56K line speed FedLine Advantage with five individual subscriptions FedLine Command with two certificates FedLine Direct with two certificates Intra-day file Statement of account spreadsheet file End of day (machine readable) file Service charge information Billing data format file FedLine Direct Enhanced (D256) ..................................................................................................................................................... Includes: FedLine Direct traditional (D56) package with 256K line speed FedACH risk management services FedACH EDI via secure e-mail FedLine Direct Premier (DT1) ........................................................................................................................................................... Includes: FedLine Direct enhanced package with T1 line speed One dedicated unattended wide area network connection for FedLine Direct Premium Options (monthly) 70 Electronic Access Additional subscribers package (each package contains 5 additional subscribers) ................................................................... Additional FedLine Command certificate 71 .................................................................................................................................. Additional FedLine Direct certificate 72 ......................................................................................................................................... Maintenance of additional virtual private network ........................................................................................................................ FedLine Advantage 800# Usage (per hour) ................................................................................................................................ Additional dedicated connections 73 56K ............................................................................................................................................................................................... 256K ............................................................................................................................................................................................. T1 .................................................................................................................................................................................................. Dial Only VPN surcharge .................................................................................................................................................................. Expedited VPN .................................................................................................................................................................................... FedLine international setup (one-time fee) ......................................................................................................................................... Transparent contingency 74 ................................................................................................................................................................. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 E:\FR\FM\03NON1.SGM 03NON1 $30.00. 110.00. 140.00. 380.00. 405.00. 700.00. 3,000.00. 3,500.00. 6,000.00. 80.00 80.00 80.00 60.00 2.00 2,000.00 2,450.00 3,000.00 25.00. 500.00 1,000.00 1,000.00 67748 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Notices ELECTRONIC ACCESS 2011 FEE SCHEDULE—Continued [Effective January 3, 2011. Bold prices indicate changes from 2010 Fee Schedule.] Electronic Access Packages (monthly) Fee FedImage/large file delivery ................................................................................................................................................................ FedMail fax (monthly per routing number) ..................................................................................................................................... Accounting Information Services Cash Management System 75 Basic—Respondent and/or sub-account reports (per report/month) .................................................................................... Basic—Respondent/sub-account recap report (per month) ................................................................................................. Plus—Own report up to six times a day (per month) ........................................................................................................... Plus—Less than 10 respondent and/or sub-accounts .......................................................................................................... Plus—10–50 respondent and/or sub-accounts ..................................................................................................................... Plus—51–100 respondents and/or sub-accounts ................................................................................................................. Plus—101–500 respondents and/or sub-accounts ............................................................................................................... Plus—>500 respondents and/or sub-accounts ..................................................................................................................... End of day reconcilement file (per month) 76 ...................................................................................................................................... Statement of account spreadsheet file (per month) 77 ........................................................................................................................ Intra-day file (per month) 78 ................................................................................................................................................................. ACTS Report—< 20 sub-accounts ...................................................................................................................................................... ACTS Report—21–40 sub-accounts ................................................................................................................................................... ACTS Report—41–60 sub-accounts ................................................................................................................................................... ACTS Report—>60 sub-accounts ....................................................................................................................................................... * * * * * By order of the Board of Governors of the Federal Reserve System, October 27, 2010. Jennifer J. Johnson, Secretary of the Board. [FR Doc. 2010–27697 Filed 11–2–10; 8:45 am] BILLING CODE 6210–01–P FEDERAL RESERVE SYSTEM Formations of, Acquisitions by, and Mergers of Bank Holding Companies jlentini on DSKJ8SOYB1PROD with NOTICES The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) (BHC Act), Regulation Y (12 CFR part 68 Check 21 services can be accessed via three options: FedLine Web, an Internet connection with Axway Secure Transport Client, or a dedicated connection using Connect:Direct. 69 Daylight Overdraft Report, Ex-Post Activity Snapshot, and Integrated Accounting Statement of Account are available via FedMail. 70 Premium options for FedLine Web Traditional are limited to FedMail Fax. 71 Additional FedLine Command Certificates available for FedLine Command and Direct Packages only. 72 Additional FedLine Direct Certificates available for FedLine Direct Packages only. 73 Network diversity supplemental charge of $2,000 a month may apply in addition to these fees. 74 Transparent contingency is available only for FedLine Direct Packages. 75 Cash Management System options are limited to Enhanced and Premier Packages. 76 End of Day Reconcilement File option is available to FedLine Web Enhanced and FedLine Advantage Enhanced Packages. 77 Statement of Account Spreadsheet File option is available to FedLine Web Enhanced and FedLine Advantage Enhanced packages. 78 ACTS Report options are limited to FedLine Command Enhanced and FedLine Direct Enhanced and Premier packages. VerDate Mar<15>2010 19:21 Nov 02, 2010 Jkt 223001 225), and all other applicable statutes and regulations to become a bank holding company and/or to acquire the assets or the ownership of, control of, or the power to vote shares of a bank or bank holding company and all of the banks and nonbanking companies owned by the bank holding company, including the companies listed below. The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The application also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise noted, nonbanking activities will be conducted throughout the United States. Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than November 27, 2010. A. Federal Reserve Bank of Kansas City (Dennis Denney, Assistant Vice President) 1 Memorial Drive, Kansas City, Missouri 64198–0001: 1. Aslin Opportunity Fund BK, LP, Cape Haze, Florida, to acquire 46.7 percent of the voting shares of Aslin Group, Inc., parent of Alterra Bank, both in Overland Park, Kansas. PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 Various. 40.00 10.00 40.00 60.00 125.00 225.00 400.00 750.00 1,000.00 150.00 150.00 150.00 250.00 500.00 750.00 1,000.00 Board of Governors of the Federal Reserve System, October 29, 2010. Robert deV. Frierson, Deputy Secretary of the Board. [FR Doc. 2010–27729 Filed 11–2–10; 8:45 am] BILLING CODE 6210–01–P FEDERAL RESERVE SYSTEM Formations of, Acquisitions by, and Mergers of Bank Holding Companies The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) (BHC Act), Regulation Y (12 CFR Part 225), and all other applicable statutes and regulations to become a bank holding company and/or to acquire the assets or the ownership of, control of, or the power to vote shares of a bank or bank holding company and all of the banks and nonbanking companies owned by the bank holding company, including the companies listed below. The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The application also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise E:\FR\FM\03NON1.SGM 03NON1

Agencies

[Federal Register Volume 75, Number 212 (Wednesday, November 3, 2010)]
[Notices]
[Pages 67731-67748]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27697]


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FEDERAL RESERVE SYSTEM

[Docket No. OP 1396]


Federal Reserve Bank Services

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
has approved the private sector adjustment factor (PSAF) for 2011 of 
$39.5 million and the 2011 fee schedules for Federal Reserve priced 
services and electronic access. These actions were taken in accordance 
with the requirements of the Monetary Control Act of 1980, which 
requires that, over the long run, fees for Federal Reserve priced 
services be established on the basis of all direct and indirect costs, 
including the PSAF. The Board has also approved maintaining the current 
earnings credit rate on clearing balances.

DATES: The new fee schedules and earnings credit rate become effective 
January 3, 2011.

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 Jonathan C. Mueller, Senior 
Financial Analyst, (202/530-6291), 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 2011 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 2000 through 2009, the Reserve Banks recovered 97.8 percent of 
their total expenses (including imputed costs) and targeted after-tax 
profits or return on equity (ROE) for providing priced services.\1\
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    \1\ The ten-year recovery rate is based 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 93.0 
percent for the ten-year period. This measure of long-run cost 
recovery is also published in the Board's Annual Report.
---------------------------------------------------------------------------

    Table 1 summarizes 2009, 2010 estimated, and 2011 budgeted cost-
recovery rates for all priced services. Cost recovery is estimated to 
be 102.9 percent in 2010 and budgeted to be 102.0 percent in 2011. The 
check service accounts for slightly over half of the total cost of 
priced services and thus

[[Page 67732]]

significantly influences the aggregate cost-recovery rate.

                  Table 1--Aggregate Priced Services Pro Forma Cost and Revenue Performance \a\
                                                  [$ Millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                  5 \e\ Recovery
                                                    2 \c\ Total    3 Net income   4 \d\ Targeted    rate after
              Year                 1 \b\ Revenue      expense       (ROE) [1-2]         ROE        targeted ROE
                                                                                                     [1/(2+4)]
----------------------------------------------------------------------------------------------------------------
2009............................           675.4           707.5           -32.1            19.9           92.8%
2010 (estimate).................           572.7           543.3            29.4            13.3          102.9%
2011 (budget)...................           497.6           470.9            26.7            16.8          102.0%
----------------------------------------------------------------------------------------------------------------
\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, federal funds,
  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. For 2011, investments are limited to short-term Treasury securities and federal
  funds with no constant spread imputed. 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 2010 estimate, the targeted ROE reflects
  average actual clearing balance levels through July 2010.
\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 2000 to 2009, 2009, 2010 budget, 2010 estimate, 
and 2011 budget by priced service.

                                     Table 2--Priced Services Cost Recovery
                                                    [Percent]
----------------------------------------------------------------------------------------------------------------
                                                                                                    2011 Budget
         Priced service              2000-2009         2009         2010 Budget    2010 Estimate        \a\
----------------------------------------------------------------------------------------------------------------
All services....................            97.8            92.8            96.9           102.9           102.0
Check...........................            96.8            92.8            94.7           103.7           102.8
FedACH..........................           102.6            93.4            99.9           101.9           100.4
Fedwire Funds and NSS...........           101.5            92.1           100.2           100.2           101.0
Fedwire Securities..............           101.0            93.8           103.1           104.3           103.8
----------------------------------------------------------------------------------------------------------------
\a\ 2011 budget figures reflect the latest data from the Reserve Banks. The Reserve Banks will transmit final
  budget data to the Board in November 2010, for Board consideration in December 2010.

    1. 2010 Estimated Performance--The Reserve Banks estimate that they 
will recover 102.9 percent of the costs of providing priced services in 
2010, including imputed costs and targeted ROE, compared with a 
budgeted recovery rate of 96.9 percent, as shown in table 2. The 
Reserve Banks estimate that all services will achieve full cost 
recovery. Overall, the Reserve Banks estimate that they will fully 
recover actual and imputed costs and earn net income of $29.4 million, 
compared with the target of $13.3 million. The greater-than-targeted 
net income is driven largely by the performance of the check service, 
which had greater-than-expected operational cost savings and revenue.
    2. 2011 Private Sector Adjustment Factor--The 2011 PSAF for Reserve 
Bank priced services is $39.5 million. This amount represents a 
decrease of $2.4 million from the estimated 2010 revised PSAF of $41.9 
million. Although the estimated imputed cost of equity is expected to 
increase, it is offset by a decrease in other required PSAF costs.\2\
---------------------------------------------------------------------------

    \2\ In October 2009, the Board approved a budgeted 2010 PSAF of 
$50.2 million, which was based on the July 2009 clearing balance 
level of $4,831.5 million. Since that time, clearing balances have 
declined, which affects the 2010 PSAF and NICB. The 2010 estimated 
PSAF of $41.9 million, which is based on actual average clearing 
balances of $2,772.2 million through July 2010, reflects the lower 
equity costs resulting from the decrease in clearing balances. The 
2010 final PSAF will be adjusted to reflect average clearing balance 
levels through the end of 2010.
---------------------------------------------------------------------------

    3. 2011 Projected Performance--The Reserve Banks project a priced 
services cost recovery rate of 102.0 percent in 2011. The 2011 fees for 
priced services are projected to result in a net income of $26.7 
million compared with the target ROE of $16.8 million.
    The primary risks to the Reserve Banks' ability to achieve their 
targeted cost recovery rates are unanticipated volume and revenue 
reductions and the potential for cost overruns or delays with 
technological upgrades. In light of these risks, the Reserve Banks will 
continue to refine their business and operational strategies to 
aggressively manage operating costs, take advantage of efficiencies 
gained from technological upgrades, and increase value-added product 
revenue.
    4. 2011 Pricing--The following summarizes the Reserve Banks' 
changes in fee schedules for priced services in 2011:

Check

     The Reserve Banks will decrease FedForward fees 8 percent 
for checks presented electronically and increase FedForward fees 50 
percent for checks presented as substitute checks.\3\ The

[[Page 67733]]

average fee paid by FedForward depositors will decline 14 percent from 
the average 2010 fee as the number of depository institutions that 
accept their presentments electronically increases. The Reserve Banks 
will retain FedReturn fees for checks returned electronically through 
FedLine at the current level, decrease fees 30 percent for checks 
returned electronically in PDF files, and increase fees 14 percent for 
endpoints that receive substitute checks.\4\ The average fee paid by 
FedReturn depositors will decrease 20 percent as the number of 
institutions that accept their returns electronically increases.\5\
---------------------------------------------------------------------------

    \3\ FedForward is the electronic forward check collection 
product. A substitute check is a paper reproduction of an original 
check that contains an image of the front and back of the original 
check and is suitable for automated processing in the same manner as 
the original check.
    \4\ FedReturn is the electronic check return product.
    \5\ 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. The Reserve Banks are decreasing 
FedForward fees for the presentment of checks to electronic 
endpoints and raising fees for the presentment of checks to 
substitute check endpoints, the effective fee paid by depository 
institutions will decline by 14 percent in 2011 due to the expected 
increase in the number of institutions that accept checks 
electronically. The Reserve Banks are also retaining FedReturn fees 
for checks delivered electronically through FedLine, decreasing fees 
for checks delivered electronically via PDF files, and increasing 
fees for checks delivered as substitute checks. However, the 
effective fee paid by depository institutions will decrease 20 
percent in 2011 as an increasing proportion of checks are returned 
to electronic endpoints and PDF receivers, which are subject to 
relatively lower fees than checks returned to paper endpoints.
---------------------------------------------------------------------------

     The Reserve Banks will increase traditional paper forward 
collection fees 181 percent and traditional paper return service fees 
81 percent.
     With the 2011 fees, the price index for the total check 
service will have increased 80 percent since 2001. 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 60 
percent.

FedACH

     The Reserve Banks will raise the addenda record fees for 
originations and receipts from $0.0013 to $0.0015 and increase the 
information extract file fee from $50 to $75.
     With the 2011 fees, the price index for the FedACH service 
will have decreased 32 percent since 2001.

Fedwire Funds and National Settlement

     The Reserve Banks will implement a per-item surcharge of 
$0.18 on the sender of Fedwire Funds transfers processed by the Reserve 
Banks after 5 p.m. ET.
     The Reserve Banks will introduce a $10 monthly fee for the 
usage of the import/export feature of the FedLine Advantage electronic 
access package for the Fedwire Funds Service. This feature allows 
FedLine Advantage customers to import (export) an external file with 
multiple transactions into (from) the Fedwire Funds Service.
     The Reserve Banks will increase the National Settlement 
Service's settlement file fee from $18 to $20, and the settlement entry 
fee from $0.80 to $0.90.
     The Reserve Banks will change the Fedwire Funds Service's 
volume-based transfer fee structure to include incentive discounts 
based on customers' historic volume. This change will increase the base 
price of transfers but will provide substantial discounts from these 
fees for a portion of customers' expected volumes. The change will be 
implemented in two parts. First, the existing fees for all volume tiers 
will increase by as much as 73 percent. Second, customers will receive 
an 80 percent discount on these higher fees for the portion of a 
customer's monthly online volume that exceeds 50 percent of their 
historic benchmark volume, calculated as an average monthly volume of 
activity over the previous five calendar years. The change will produce 
a more stable stream of revenue for the Fedwire Funds service, for the 
first 50 percent of their customers' historic benchmark volume. 
Further, the Reserve Banks expect the incentive discounts to improve 
their ability to retain business and attract additional volume by 
decreasing the marginal price of transfers to a fee closer to the 
Reserve Banks' marginal cost. The decrease in the marginal price of 
transfers is consistent with the Federal Reserve's objectives to foster 
efficiency in the payment systems and to improve the efficiency of 
Reserve Bank services.
     With the 2011 fees, the price index for the Fedwire Funds 
and National Settlement Services will have increased 28 percent since 
2001.

Fedwire Securities

     The Reserve Banks will retain fees at their current 
levels.
     With the 2011 fees, the price index for the Fedwire 
Securities Service will have decreased 14 percent since 2001.
    5. 2011 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 2010, the price index for all Reserve Bank priced 
services is projected to decrease 3 percent in 2011. The price index 
for total check services is projected to decrease approximately 8 
percent. The price index for Check 21 services is projected to decrease 
approximately 17 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 46 percent. The price index for 
electronic payment services, which include the FedACH Service, Fedwire 
Funds and National Settlement Services, and Fedwire Securities Service, 
is projected to increase approximately 3 percent. For the period 2001 
to 2011, the price index for all priced services is expected to 
increase 68 percent. In comparison, for the period 2001 to 2009, the 
GDP price index increased 21 percent.

[[Page 67734]]

[GRAPHIC] [TIFF OMITTED] TN03NO10.000

    B. Private Sector Adjustment Factor--In March 2009, the Board 
requested comment on proposed changes to the methodology for 
calculating the PSAF.\6\ 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 balances held by 
depository institutions at the Reserve Banks and the anticipated 
consequent decline in balances held by depository institutions at 
Reserve Banks for clearing priced-services transactions (clearing 
balances).
---------------------------------------------------------------------------

    \6\ 74 FR 15481-15491 (Apr. 6, 2009).
---------------------------------------------------------------------------

    Since the implementation of the payment of interest on reserve 
balances, clearing balances have not declined as rapidly as originally 
anticipated and remain significant. Between the October 2008 
implementation of the payment of interest on reserve balances and 
January 2009, the total level of clearing balances held by depository 
institutions decreased approximately $2 billion, from $6.5 billion to 
$4.5 billion. During the first half of 2009, clearing balance levels 
were nearly flat at approximately $4.5 billion. Since mid-2009, 
clearing balances have declined moderately each month, and as of the 
end of July 2010, clearing balances were $2.6 billion. As a result of 
the relative significance of the remaining balances, the Board 
continued to use the correspondent bank model for the 2010 PSAF, and 
will continue using the correspondent bank model for the 2011 PSAF.\7\
---------------------------------------------------------------------------

    \7\ The Board is currently analyzing further the proposed 
publicly traded firm model.
---------------------------------------------------------------------------

    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 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, other 
long-term liabilities, and equity are not sufficient to fund long-term 
assets.\8\ Short-term debt is imputed only when other 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 may be

[[Page 67735]]

partially funded from core clearing balances.
---------------------------------------------------------------------------

    \8\ Core clearing balances, currently $1 billion, are considered 
the portion of the balances that has remained stable over time 
without regard to the magnitude of actual clearing balances.
---------------------------------------------------------------------------

    Imputed equity is set to meet 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.\9\ 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.
---------------------------------------------------------------------------

    \9\ As shown in table 7, 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 50 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 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.\10\ 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.\11\ A return on the imputed reserve 
requirement, which is based on the level of clearing balances on the 
pro forma balance sheet, is imputed to reflect the return that would be 
earned on a required reserve balance held at a Reserve Bank.
---------------------------------------------------------------------------

    \10\ Reserve requirements are the amount of funds that a 
depository institution must hold, in the form of vault cash or 
deposits with Federal Reserve Banks, in reserve against specified 
deposit liabilities. The dollar amount of a depository institution'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 10 percent, which is applied to the amount of 
clearing balances held with the Reserve Banks.
    \11\ The allowed portfolio of investments is comparable to a 
bank holding company's investment holdings, such as short-term 
Treasury securities, government agency securities, federal funds, 
commercial paper, long-term corporate bonds, and money market funds. 
As shown in table 7, the investments imputed for 2011 are three-
month Treasury bills and federal funds.
---------------------------------------------------------------------------

    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 2011 projected NICB are based on July 2010 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.
    NICB is projected to be $1.2 million for 2011, including earnings 
on imputed reserve requirements.\12\ The imputed rate is equal to the 
three-month Treasury bill rate with no constant spread due to the 
results of the interest rate sensitivity analysis. See the ``Analysis 
of the 2011 PSAF'' section for more information on the interest rate 
sensitivity analysis results and the effect on the 2011 NICB.
---------------------------------------------------------------------------

    \12\ The 2010 NICB was initially budgeted to be $14.5 million 
and is now estimated at $8.0 million. The decrease in NICB is due to 
a decrease in clearing balance levels.
---------------------------------------------------------------------------

    2. Calculating Cost Recovery--The PSAF and NICB are incorporated 
into the projected and actual annual cost-recovery calculations for 
Reserve Bank priced services. 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 PSAF derived during the price-
setting process with only minimal adjustments for actual rates or 
balance levels.\13\ Beginning in 2009, in light of the uncertainty 
about the long-term effect that the payment of interest on reserve 
balances would have on the level of clearing balances, the Board 
adjusts the PSAF used in the actual cost-recovery calculation to 
reflect the actual clearing balance levels maintained throughout the 
year. 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 during the year when calculating actual priced services 
cost recovery.
---------------------------------------------------------------------------

    \13\ 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 2011 PSAF--The decrease in the 2011 PSAF is due 
primarily to a reduction in the level of imputed equity associated with 
a decrease in assets and clearing balances.
    Projected 2011 Federal Reserve priced-services assets, reflected in 
table 3, have decreased $1,844.0 million, mainly due to a decline in 
imputed investments in marketable securities of $1,496.1 million. This 
reduction stems from the decline in clearing balances held by 
depository institutions at Reserve Banks.
    The priced services balance sheet includes projected clearing 
balances of $2,600.3 million for 2011, which represents a decrease of 
$2,231.2 million from the amount of clearing balances on the balance 
sheet for the budgeted 2010 PSAF. Because of the continued uncertainty 
regarding the level of clearing balances in an interest-on-reserves 
environment, the actual PSAF costs used in cost-recovery calculations 
will continue to be based on the actual levels of clearing balances 
held throughout 2011.
    Credit float, which represents the difference between items in 
process of collection and deferred credit items, increased from 
$1,200.0 million in 2010

[[Page 67736]]

to $1,800.0 million in 2011.\14\ The increase is primarily a result of 
credit float generated by a greater use of Check 21 deferred-
availability products.
---------------------------------------------------------------------------

    \14\ Credit float occurs when the Reserve Banks present 
transactions 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 
2011, $15.5 million in clearing balances is used as a funding source 
for short-term assets. Long-term liabilities and equity exceed long-
term assets by $23.8 million; therefore, no core clearing balances are 
used to fund long-term assets.
    The Board uses an interest rate sensitivity analysis to ensure that 
the interest rate risk of the priced services balance sheet, and its 
effect on cost recovery, are appropriately managed and that the priced 
services long-term assets are appropriately funded with long-term 
liabilities and equity. The interest rate sensitivity analysis measures 
the relationship between rate sensitive assets and liabilities when 
they reprice as a result of a change in interest rates.\15\ If a 200 
basis point increase or decrease in interest rates changes priced 
services cost recovery by more than 2 percentage points, rather than 
using core clearing balances to fund long-term assets, long-term debt 
is imputed.
---------------------------------------------------------------------------

    \15\ Interest rate sensitive assets and liabilities are defined 
as those balances that will reprice in a year.
---------------------------------------------------------------------------

    The interest rate sensitivity analysis shown in table 5 indicates 
that a 200 basis point decrease in rates decreases cost recovery 5.1 
percentage points, while an increase of 200 basis points in rates 
increases cost recovery 4.9 percentage points. The greater-than-two-
percentage-point effect on cost recovery is the result of a large gap 
between rate-sensitive assets and liabilities, and the relationship to 
priced services net income. The gap is caused by an increase in rate 
sensitive assets, specifically, the imputed federal funds investment 
needed to offset projected level of credit float in 2011. The results 
of the analysis have the following effects on the 2011 PSAF and NICB:
     Generally, the results of the interest rate sensitivity 
analysis indicate when long-term debt should be imputed rather than 
using core clearing balances to fund long-term assets. The requirement 
to impute debt remedies an asset mismatch when too many clearing 
balances (rate sensitive liabilities) are being used to fund long-term 
assets and there is a need for another funding source (i.e. long-term 
debt). For the 2011 PSAF, however, the mismatch arises from the level 
of credit float rather than the use of clearing balances to fund long-
term assets. If debt were to be imputed for the 2011 PSAF, clearing 
balances now used to finance assets would be invested in rate sensitive 
assets. Therefore, imputing debt would cause the gap between interest-
rate-sensitive assets and liabilities to widen further, resulting in an 
even greater effect on cost recovery than shown in table 5. 
Accordingly, the Board will not impute debt for the 2011 PSAF. Going 
forward, imputed debt will be limited to the amount of clearing 
balances used to finance long-term assets. (See table 4 for the portion 
of clearing balances used to fund priced-services assets.)
     Because of the heightened cost recovery sensitivity to 
interest rate fluctuations, the investment of clearing balances is 
limited to three-month Treasury bills (with no additional imputed 
constant spread).
    As shown in table 3, the amount of equity imputed for the 2011 PSAF 
is $277.2 million, a decrease of $92.2 million from the imputed equity 
for 2010. In accordance with FAS 158 [ASC 715], this amount includes an 
accumulated other comprehensive loss of $343.2 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 
depository institution. Equity is calculated as 5 percent of total 
assets, and the ratio of capital to risk-weighted assets exceeds 10 
percent.\16\ The Reserve Banks imputed an FDIC assessment for the 
priced services based on the FDIC's proposed assessment rates and the 
level of clearing balances held at Reserve Banks.\17\ For 2011, the 
FDIC assessment is imputed at $5.3 million, compared with an FDIC 
assessment of $9.6 million in 2010.
---------------------------------------------------------------------------

    \16\ 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 
previously, until the regulators announce a final ruling.
    \17\ For information on the proposed FDIC assessment rates, see 
http://www.fdic.gov/news/news/press/2010/pr10229.html.
---------------------------------------------------------------------------

    Table 6 shows the imputed PSAF elements, including the pretax ROE 
and other required PSAF costs, for 2010 and 2011. The $3.4 million 
decrease in ROE is caused by a lower amount of imputed equity, slightly 
offset by a higher target ROE rate. Imputed sales taxes decreased from 
$5.2 million in 2010 to $4.2 million in 2011. The effective income tax 
rate used in 2011 decreased to 32.4 percent from 33.1 percent in 2010. 
The priced services portion of the Board's expenses decreased $2.0 
million, from $7.2 million in 2010 to $5.2 million in 2011.

   Table 3--Comparison of Pro Forma Balance Sheets for Federal Reserve
                          Priced Services \18\
            [Millions of dollars--projected average for year]
------------------------------------------------------------------------
                                            2011       2010      Change
------------------------------------------------------------------------
Short-term assets:
    Imputed reserve requirement on          $440.0     $603.1   $(163.1)
     clearing balances.................
    Receivables........................       41.4       45.9      (4.5)
    Materials and supplies.............        1.5        0.9        0.6
    Prepaid expenses...................        7.6       23.2     (15.6)
    Items in process of collection \19\      300.0      520.0    (220.0)
                                        --------------------------------
        Total short-term assets........      790.7    1,193.1    (402.6)
Imputed investments....................    3,968.6    5,464.7  (1,496.1)
Long-term assets:
    Premises \20\......................      173.1      235.4     (62.3)
    Furniture and equipment............       43.2       62.1     (18.9)
    Leasehold improvements and long-          68.2       60.3        7.9
     term prepayments..................
    Prepaid pension costs..............      299.8      148.9      150.9
    Prepaid FDIC asset.................       10.9       24.6     (13.7)

[[Page 67737]]

 
    Deferred tax asset.................      189.7      198.9      (9.2)
                                        --------------------------------
        Total long-term assets.........      784.9      730.2       54.7
                                        --------------------------------
            Total assets...............    5,544.0    7,388.0  (1,844.0)
                                        --------------------------------
Short-term liabilities \21\:
    Clearing balances..................    2,600.3    4,831.5  (2,231.2)
    Deferred credit items \19\.........    2,100.0    1,720.0      380.0
    Short-term payables................       35.0       59.8     (24.8)
                                        --------------------------------
        Total short-term liabilities...    4,735.3    6,611.3  (1,876.0)
Long-term liabilities \21\
    Postemployment/postretirement            531.5      407.3      124.2
     benefits liability \22\...........
                                        --------------------------------
        Total liabilities..............    5,266.8    7,018.6  (1,751.8)
Equity \23\............................      277.2      369.4     (92.2)
                                        --------------------------------
    Total liabilities and equity.......    5,544.0    7,388.0  (1,844.0)
------------------------------------------------------------------------
\18\ The 2010 PSAF values in tables 3, 4, and 6 reflect the budgeted
  2010 PSAF of $50.2 million approved by the Board in October 2009.
\19\ Represents float that is directly estimated at the service level.
\20\ Includes the allocation of Board of Governors assets to priced
  services of $0.7 million for 2011 and $0.9 million for 2010.
\21\ No debt is imputed because clearing balances are a funding source.
\22\ Includes the allocation of Board of Governors liabilities to priced
  services of $0.5 million for 2011 and $0.4 million for 2010.
\23\ Includes an accumulated other comprehensive loss of $407.7 million
  for 2010 and $343.2 million for 2011, which reflects 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 4--Portion of Clearing Balances Used to Fund Priced-Services Assets
                                              [Millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2011                            2010
----------------------------------------------------------------------------------------------------------------
A. Short-term asset financing
    Short-term assets to be financed:
        Receivables.............................           $41.4  ..............           $45.9  ..............
        Materials and supplies..................             1.5  ..............             0.9  ..............
        Prepaid expenses........................             7.6  ..............            23.2  ..............
                                                 ----------------                ----------------
            Total short-term assets to be                   50.5  ..............            70.0  ..............
             financed...........................
    Short-term funding sources..................
        Short-term payables.....................            35.0  ..............            59.8  ..............
        Portion of short-term assets funded with  ..............            15.5  ..............            10.2
         clearing balances \24\.................
B. Long-term asset financing
    Long-term assets to be financed:
        Premises................................           173.1  ..............           235.4  ..............
        Furniture and equipment.................            43.2  ..............            62.1  ..............
        Leasehold improvements and long-term                68.2  ..............            60.3  ..............
         prepayments............................
        Prepaid pension costs...................           299.8  ..............           148.9  ..............
        Prepaid FDIC asset......................            10.9  ..............            24.6  ..............
        Deferred tax asset......................           189.7  ..............           198.9  ..............
                                                 ----------------                ----------------
            Total long-term assets to be                   784.9  ..............           730.2  ..............
             financed...........................
    Long-term funding sources:
        Postemployment/postretirement benefits             531.5  ..............           407.3  ..............
         liability..............................
        Imputed equity \25\.....................           277.2  ..............           369.4  ..............
                                                 ----------------                ----------------
            Total long-term funding sources.....           808.7  ..............           776.7  ..............
    Portion of long-term assets funded with core  ..............             0.0  ..............             0.0
     clearing balances \24\.....................
                                                 ----------------                ----------------
C. Total clearing balances used for funding       ..............            15.5  ..............            10.2
 priced-services assets.........................
----------------------------------------------------------------------------------------------------------------
\24\ 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 $1 billion in clearing balances is available
  for this purpose in 2010 and 2011, 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.
\25\ See table 6 for calculation of required imputed equity amount.


[[Page 67738]]


                              Table 5--2011 Interest Rate Sensitivity Analysis \26\
                                              [Millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                       Rate
                                                                  Rate sensitive    insensitive        Total
----------------------------------------------------------------------------------------------------------------
Assets:
    Imputed reserve requirement on clearing balances............          $440.0  ..............          $440.0
    Imputed investments.........................................         3,968.6  ..............         3,968.6
    Receivables.................................................  ..............           $41.4            41.4
    Materials and supplies......................................  ..............             1.5             1.5
    Prepaid expenses............................................  ..............             7.6             7.6
    Items in process of collection..............................  ..............           300.0           300.0
    Long-term assets............................................  ..............           784.9           784.9
                                                                 -----------------------------------------------
        Total assets............................................         4,408.6         1,135.4         5,544.0
================================================================================================================
Liabilities:
    Clearing balances...........................................         2,600.3  ..............         2,600.3
    Deferred credit items.......................................  ..............         2,100.0         2,100.0
    Short-term payables.........................................  ..............            35.0            35.0
    Long-term liabilities.......................................  ..............           531.5           531.5
                                                                 -----------------------------------------------
        Total liabilities.......................................         2,600.3         2,666.5         5,266.8
                                                                 ===============================================
 Rate change results:                                             ..............       200 basis       200 basis
                                                                                  point decrease  point increase
                                                                                        in rates        in rates
                                                                 -----------------------------------------------
    Asset yield ($4,408.6 x rate change)........................  ..............         $(88.2)           $88.2
    Liability cost ($2,600.3 x rate change).....................  ..............          (52.0)            52.0
                                                                                 -------------------------------
        Effect of 200 basis point change........................  ..............          (36.2)            36.2
                                                                                 ===============================
    2011 budgeted revenue.......................................  ..............           497.6           497.6
    Effect of change............................................  ..............          (36.2)            36.2
                                                                                 -------------------------------
        Revenue adjusted for effect of interest rate change.....  ..............           461.4           533.8
                                                                                 ===============================
    2011 budgeted total expenses................................  ..............           443.4           443.4
    2011 budgeted PSAF..........................................  ..............            44.3            44.3
    Tax effect of interest rate change ($ change x 32.4%).......  ..............          (11.7)            11.7
                                                                                 -------------------------------
        Total recovery amounts..................................  ..............           476.0           499.4
                                                                                 ===============================
    Recovery rate before interest rate change...................  ..............          102.0%          102.0%
    Recovery rate after interest rate change....................  ..............           96.9%          106.9%
    Effect of interest rate change on cost recovery \27\........  ..............          (5.1)%            4.9%
----------------------------------------------------------------------------------------------------------------
\26\ The interest rate sensitivity analysis evaluates the level of interest rate risk presented by the
  difference between rate-sensitive assets and rate-sensitive liabilities. The analysis reviews the ratio of
  rate-sensitive assets to rate-sensitive liabilities and the effect on cost recovery of a change in interest
  rates of up to 200 basis points.
\27\ The effect of a potential change in rates is greater than a two percentage point change in cost recovery;
  however, no long-term debt is imputed for 2011 because the priced services have adequate funding sources. See
  the ``Analysis of the 2011 PSAF'' section for more information on the interest rate sensitivity analysis
  results and its effect on the 2011 PSAF and NICB.


                                  Table 6--Derivation of the 2011 and 2010 PSAF
                                              [Millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                     2011                                   2010
----------------------------------------------------------------------------------------------------------------
A. Imputed elements
    Short-term debt \28\..........  ...........         $0.0  ...........  ...........         $0.0
    Long-term debt \29\...........  ...........          0.0  ...........  ...........          0.0
    Equity
        Total assets from table 3.     $5,544.0  ...........  ...........     $7,388.0
        Required capital ratio               5%  ...........  ...........           5%
         \30\.....................
                                   -------------                          --------------------------------------
            Total equity..........  ...........       $277.2  ...........  ...........       $369.4
B. Cost of capital
    1. Financing rates/costs
        Short-term debt...........  ...........          N/A  ...........  ...........          N/A
        Long-term debt............  ...........          N/A  ...........  ...........          N/A

[[Page 67739]]

 
        Pretax return on equity     ...........         8.9%  ...........  ...........         7.6%
         \31\.....................
    2. Elements of capital costs
        Short-term debt...........  ...........  ...........         $0.0  ...........  ...........         $0.0
        Long-term debt............  ...........  ...........          0.0  ...........  ...........          0.0
        Equity....................        $277.2x8.9% =              24.8        $369.4x7.6% =              28.2
                                                             -------------                          ------------
                                    ...........  ...........        $24.8  ...........  ...........        $28.2
C. Other required PSAF costs
    Sales taxes...................  ...........         $4.2  ...........  ...........         $5.2
    FDIC assessment...............  ...........          5.3  ...........  ...........          9.6
    Board of Governors expenses...  ...........          5.2  ...........  ...........          7.2
                                                -------------                          -------------------------
                                    ...........  ...........         14.7  ...........  ...........         22.0
                                                             -------------                          ------------
D. Total PSAF.....................  ...........  ...........        $39.5  ...........  ...........        $50.2
                                                             =============                          ============
    As a percent of assets........  ...........  ...........         0.7%  ...........  ...........         0.7%
    As a percent of expenses \32\.  ...........  ...........         8.9%  ...........  ...........         9.6%
E. Tax rates......................  ...........  ...........        32.4%  ...........  ...........        33.1%
----------------------------------------------------------------------------------------------------------------
\28\ No short-term debt is imputed because clearing balances are a funding source for those assets that are not
  financed with short-term payables.
\29\ No long-term debt is imputed because core clearing balances are a funding source.
\30\ Based on the regulatory requirements for a well-capitalized institution for the purpose of assessing
  insurance premiums.
\31\ The 2011 ROE is equal to a risk-free rate plus a risk premium (beta * market risk premium). The 2011 after-
  tax CAPM ROE is calculated as 0.16% + (1 * 5.88%) = 6.04%. Using a tax rate of 32.4%, the after-tax ROE is
  converted into a pretax ROE, which results in a pretax ROE of (6.04%/(1-32.4%)) = 8.9%.
\32\ System 2011 budgeted priced services expenses less shipping and float are $441.7 million.


                Table 7--Computation of 2011 Capital Adequacy for Federal Reserve Priced Services
                                              [Millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Weighted
                                                                      Assets        Risk weight       assets
----------------------------------------------------------------------------------------------------------------
Imputed reserve requirement on clearing balances................          $440.0             0.0            $0.0
Imputed investments:
    3-month Treasury bills \33\.................................         2,168.6             0.0             0.0
    Federal funds \34\..........................................         1,800.0             0.2           360.0
                                                                 -----------------------------------------------
        Total imputed investments...............................         3,968.6  ..............           360.0
Receivables.....................................................            41.4             0.2             8.3
Materials and supplies..........................................             1.5             1.0             1.5
Prepaid expenses................................................             7.6             1.0             7.6
Items in process of collection..................................           300.0             0.2            60.0
Premises........................................................           173.1             1.0           173.1
Furniture and equipment.........................................            43.2             1.0            43.2
Leasehold improvements and long-term prepayments................            68.2             1.0            68.2
Prepaid pension costs...........................................           299.8             1.0           299.8
Prepaid FDIC asset..............................................            10.9             1.0            10.9
Deferred tax asset..............................................           189.7             1.0           189.7
                                                                 -----------------------------------------------
    Total.......................................................         5,544.0  ..............         1,222.3
                                                                 ===============================================
Imputed equity for 2011.........................................          $277.2
Capital to risk-weighted assets.................................           22.7%
Capital to total assets.........................................            5.0%
----------------------------------------------------------------------------------------------------------------
\33\ The imputed investments are similar to those for which rates are available on the Federal Reserve's H.15
  statistical release, which can be located at http://www.federalreserve.gov/releases/h15/data.htm.
\34\ The investments are computed from the amounts arising from the collection of items prior to providing
  credit according to established availability schedules. These imputed amounts are invested in federal funds.

    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.
    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

[[Page 67740]]

earnings credit calculation uses a percentage discount on a rolling 13-
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.\35\
---------------------------------------------------------------------------

    \35\ 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 2009, 2010 estimated, and 2011 
budgeted cost recovery performance for the commercial check service.

                          Table 8--Check Service Pro Forma Cost and Revenue Performance
                                                  [$ millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                    5 Recovery
                                                                                                    rate after
              Year                   1 Revenue        2 Total      3 Net income   4 Targeted ROE   targeted ROE
                                                      expense       (ROE) [1-2]                      [1/(2+4)]
                                                                                                     (percent)
----------------------------------------------------------------------------------------------------------------
2009............................           490.9           514.6           -23.7            14.4            92.8
2010 (estimate).................           358.7           337.6            21.1             8.2           103.7
2011 (budget)...................           279.2           262.2            17.0             9.3           102.8
----------------------------------------------------------------------------------------------------------------

    1. 2010 Estimate--For 2010, the Reserve Banks estimate that the 
check service will recover 103.7 percent of total expenses and targeted 
ROE, compared with the budgeted recovery rate of 94.7 percent. The 
Reserve Banks expect to recover all actual and imputed costs of 
providing check services and earn a net income of $21.1 million (see 
table 8).
    The higher-than-budgeted cost recovery is the result of higher 
projected revenue of $13.3 million. In paper services, revenue is 
higher than expected because of mid-year price increases and higher-
than-budgeted exception item volume. In electronic services, the higher 
revenue is due to greater use of products with later deposit deadlines 
and volume destined to higher-priced paper endpoints. Expenses are 
projected to be $16.1 million lower than expected due primarily to the 
full-year effects of cost savings associated with the earlier-than-
expected elimination of transportation for paper checks among Reserve 
Bank offices, the transition from courier service to overnight delivery 
service for paper check presentments, and the accelerated restructuring 
of the Reserve Banks' check processing infrastructure.
    The general decline in the number of checks written continues to 
influence the decline in checks collected by the Reserve Banks. Through 
August, total forward check volume and return check volume is 9 percent 
and 16 percent lower, respectively, than the same period last year. For 
full-year 2010, the Reserve Banks estimate that their total forward 
check collection volume will decline nearly 10 percent and return check 
volume will decline 15 percent from 2009 levels.\36\ The proportion of 
checks deposited and presented electronically has grown steadily in 
2010 (see table 9). The Reserve Banks expect that year-end 2010 
FedForward deposit and FedReceipt presentment penetration rates will 
reach 99.7 percent and 98.9 percent, respectively. The Reserve Banks 
also expect that year-end 2010 FedReturn and FedReceipt Return 
penetration rates will reach 96.2 percent and 80.0 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-of