Federal Reserve Bank Services, 75058-75088 [2016-26068]
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Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
24. For a thorough discussion of the
prohibition of certain communications
during the incentive auction, please
refer to the Prohibited Communications
Public Notice, 80 FR 63216, October 19,
2015.
25. Making Modifications to
Applications. The Task Force and
Bureau remind each reverse and
forward auction applicant that the
Commission’s rules require an applicant
to maintain the accuracy and
completeness of information furnished
in its application to participate in
Auctions 1001 and 1002, respectively.
Each applicant should amend its
application to furnish additional or
corrected information within five days
of a significant occurrence, or no more
than five days after the applicant
becomes aware of the need for an
amendment. Any applicant that needs
to make changes must do so using the
procedures described in the Auction
1000 Application Procedures Public
Notice and the Auction 1002 Qualified
Bidders Public Notice.
26. To make changes to its FCC Form
177 or FCC Form 175 while the Auction
System is available, the applicant must
make those changes electronically using
the Auction System and submit a letter
briefly summarizing the changes to its
FCC Form 177 by email to
auction1001@fcc.gov, or to its FCC Form
175 by email to auction1002@fcc.gov.
To make changes at a time when the
Auction System is unavailable, the
applicant must make those changes
using the procedures described in the
Auction 1000 Application Procedures
Public Notice. All changes are subject to
review by Commission staff.
Federal Communications Commission.
Gary D. Michaels,
Deputy Chief, Auctions and Spectrum Access
Division, WTB.
[Docket No. OP–1552]
Sinthorntham, Senior Financial Analyst,
(202) 452–2864, 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 2017
fee schedules for the check service are
available from the Board, the Federal
Reserve Banks, or the Reserve Banks’
financial services Web site at
www.frbservices.org.
Federal Reserve Bank Services
SUPPLEMENTARY INFORMATION:
AGENCY:
Board of Governors of the
Federal Reserve System.
ACTION: Notice.
I. Private Sector Adjustment Factor,
Priced Services Cost Recovery, and
Overview of 2017 Price Changes
The Board of Governors of the
Federal Reserve System (Board) has
approved the private sector adjustment
factor (PSAF) for 2017 of $16.6 million
and the 2017 fee schedules for Federal
Reserve priced services and electronic
access. These actions were taken in
accordance with the Monetary Control
Act of 1980, which requires that, over
the long run, fees for Federal Reserve
priced services be established on the
basis of all direct and indirect costs,
including the PSAF.
DATES: The new fee schedules become
effective January 3, 2017.
FOR FURTHER INFORMATION CONTACT: For
questions regarding the fee schedules:
Susan V. Foley, Senior Associate
Director, (202) 452–3596; Linda Healey,
Senior Financial Services Analyst, (202)
452–5274, Division of Reserve Bank
Operations and Payment Systems. For
questions regarding the PSAF: Gregory
L. Evans, Deputy Associate Director,
(202) 452–3945; Lawrence Mize, Deputy
Associate Director, (202) 452–5232; Max
A. Overview—Each year, as required
by the Monetary Control Act of 1980,
the Reserve Banks set fees for priced
services provided to depository
institutions. These fees are set to
recover, over the long run, all direct and
indirect costs and imputed costs,
including financing costs, taxes, and
certain other expenses, as well as the
return on equity (profit) that would have
been earned if a private business firm
provided the services. The imputed
costs and imputed profit are collectively
referred to as the PSAF. From 2006
through 2015, the Reserve Banks
recovered 102.6 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 2015 actual, 2016
estimated, and 2017 budgeted costrecovery rates for all priced services.
Cost recovery is estimated to be 103.6
percent in 2016 and budgeted to be
100.0 percent in 2017.
[FR Doc. 2016–26196 Filed 10–27–16; 8:45 am]
BILLING CODE 6712–01–P
FEDERAL RESERVE SYSTEM
SUMMARY:
TABLE 1—AGGREGATE PRICED SERVICES PRO FORMA COST AND REVENUE PERFORMANCE A
[Dollars in millions]
1b
Revenue
Year
2c
Total expense
3
Net income
(ROE)
4d
Targeted ROE
[1–2]
2015 (actual) ........................................................................
2016 (estimate) ....................................................................
2017 (budget) .......................................................................
429.1
432.5
439.4
397.8
413.3
434.8
5e
Recovery rate
after targeted
ROE
(%)
[1/(2+4)]
31.3
19.1
4.6
5.6
4.1
4.6
106.4
103.6
100.0
a Calculations
in this table and subsequent pro forma cost and revenue tables may be affected by rounding.
includes imputed income on investments when equity is imputed at a level that meets minimum capital requirements and, when
combined with liabilities, exceeds total assets.
c The calculation of total expense includes operating, imputed, and other expenses. Imputed and other expenses include taxes, 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.
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b Revenue
1 The 10-year recovery rate is based on the pro
forma income statements for Federal Reserve priced
services published in the Board’s Annual Report.
Effective December 31, 2006, the Reserve Banks
implemented the Financial Accounting Standard
Board’s (FASB) Statement of Financial Accounting
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Standards (SFAS) No. 158, Employers’ Accounting
for Defined Benefit Pension and Other
Postretirement Plans (codified in FASB Accounting
Standards Codification (ASC) Topic 715 (ASC 715),
Compesation-Retirement Benefits), which resulted
in recognizing a cumulative reduction in equity
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related to the priced services’ benefit plans.
Including this cumulative reduction in equity from
2006 to 2015 results in cost recovery of 92.8 percent
for the ten-year period. This measure of long-run
cost recovery is also published in the Board’s
Annual Report.
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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 provides an overview of costrecovery budgets, estimates, and
performance for the 10-year period from
2006 to 2015, 2015 actual, 2016 budget,
2016 estimate, and 2017 budget by
priced service.
TABLE 2—PRICED SERVICES COST RECOVERY
[Percent]
Priced service
2006–2015
All services ...........................................................................
Check ...................................................................................
FedACH ...............................................................................
Fedwire Funds and NSS .....................................................
Fedwire Securities ...............................................................
2015 Actual
102.6
103.6
99.5
101.8
102.7
2016 Budget a
2016 Estimate
2017 Budget b
101.4
105.7
99.5
99.4
97.5
103.6
109.7
98.8
103.2
97.6
100.0
104.5
95.5
101.0
97.5
106.4
113.0
100.7
103.9
108.2
a The
2016 budget figures reflect the final budgets as approved by the Board in December 2015.
b The 2017 budget figures reflect preliminary budget information from the Reserve Bank. The Reserve Banks will submit final budget data to
the Board in November 2016, for Board consideration in December 2016.
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1. 2016 Estimated Performance—The
Reserve Banks estimate that they will
recover 103.6 percent of the costs of
providing priced services in 2016,
including total expense and targeted
ROE, compared with a 2016 budgeted
recovery rate of 101.4 percent, as shown
in table 2. Overall, the Reserve Banks
estimate that they will fully recover
actual and imputed costs and earn net
income of $19.1 million, compared with
the targeted ROE of $4.1 million. The
Reserve Banks estimate that the check
service and the Fedwire® Funds and
National Settlement Service will
achieve full cost recovery; however, the
Reserve Banks estimate that the
FedACH® Service and the Fedwire
Securities Service will not achieve full
cost recovery because of investment
costs associated with multiyear
technology initiatives to modernize
their processing platforms.2 These
investments are expected to enhance
efficiency, the overall quality of
operations, and the Reserve Banks’
ability to offer additional services to
depository institutions. Greater-thanexpected check volume processed by
the Reserve Banks has been the single
most significant factor influencing
priced services cost recovery.
2. 2017 Private-Sector Adjustment
Factor—The 2017 PSAF for Reserve
Bank priced services is $16.6 million.
2 The Reserve Banks have been engaged in a
multiyear technology initiative to modernize the
FedACH processing platform by migrating the
service from a mainframe system to a distributed
computing environment. In 2016, the Reserve Banks
chose a commercially available option as their
processing solution to modernize the FedACH
platform.
The Reserve Banks completed a multiyear
technology initiative to modernize the processing
platform for the Fedwire Securities Services in
2015. The capitalized software costs of this
initiative will be amortized until October 2020 and
thus remain a primary factor in the cost recovery
calculation for these services in 2016.
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This amount represents an increase of
$3.5 million from the 2016 PSAF of
$13.1 million. This increase is primarily
the result of an increase in the total cost
of capital, which includes cost of debt
and targeted return on equity.
3. 2017 Projected Performance—The
Reserve Banks project a priced services
cost-recovery rate of 100.0 percent in
2017, with both net income and targeted
ROE of $4.6 million. The Reserve Banks
project that the price changes will result
in a 3.2 percent average price increase
for customers. The Reserve Banks
project that the check service and the
Fedwire Funds and National Settlement
Service will fully recover their costs;
however, the Reserve Banks project that
the FedACH Service and the Fedwire
Securities Service will not achieve full
cost recovery. Although FedACH is not
budgeted to fully recover its costs in
2017, the Reserve Banks are expected to
fully recover FedACH costs following
finalization of the FedACH technology
modernization project and over the long
run. In addition, the Board believes the
Reserve Banks’ 2017 FedACH fee
increases are consistent with a multiyear strategy to minimize pricing
volatility and provide long-term price
stability for customers while
undertaking the ongoing technology
upgrade that will result in FedACH
incurring higher expenses over the next
few years. Although the Fedwire
Securities Service is not budgeted to
fully recover its costs in 2017, the Board
believes the Reserve Banks are expected
to fully recover Fedwire Securities
Service costs over the long run
following a few years of under recovery.
As a result of an expected decrease in
volume as well as the advancement of
new initiatives to improve resiliency
and operational functionality, the
Reserve Banks plan to increase fees
gradually over a multi-year period to
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avoid the dramatic impact of a sharp
one-year increase.
The primary risks to the Reserve
Banks’ ability to achieve their targeted
cost-recovery rates are unanticipated
volume and revenue reductions and the
potential for cost overruns with the
technology modernization initiatives. In
light of these risks, the Reserve Banks
will continue refining their business
and operational strategies to manage
operating costs, to increase product
revenue, and to capitalize on
efficiencies gained from technology
initiatives.
4. 2017 Pricing—The following
summarizes the Reserve Banks’ fee
schedules for priced services in 2017:
Check
• The Reserve Banks announced in
July 2016, restructured FedForward®,
FedReturn®, and FedReceipt® fee
schedules to reflect today’s electronic
check-processing environment and
announced in October 2016 a minor
additional modification.3 These
previously announced fees, discussed in
attachment II, will be effective in
January 2017, consistent with the fee
schedules for other priced services. The
Reserve Banks announced the
restructured fee schedules earlier in the
year to provide customers with
sufficient notice.
FedACH
• The Reserve Banks will increase the
minimum monthly fee for FedACH
origination from $45 to $50 and the
minimum monthly fee for FedACH
receipt from $35 to $40.
• The Reserve Banks will increase the
FedACH Account Servicing fee from
3 For the July announcement, see https://
www.frbservices.org/files/servicefees/pdf/071116_
2017_check_pricing_customer_letter.pdf.
For the October announcement, see https://
frbservices.org/files/communications/pdf/check/
100316-check-modification-announcement.pdf.
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• The Reserve Banks will increase the
surcharge for offline transactions from
$55 to $60.
National Settlement Services
• The Reserve Banks will keep prices
at existing levels for the priced National
Settlement Services.
Fedwire Securities
• The Reserve Banks will increase the
online agency transfer fee from $0.65 to
$0.77.
• The Reserve Banks will increase the
offline origination and receipt surcharge
transfer fee from $66 to $80.
• The Reserve Banks will increase the
monthly agency issues maintenance fee
from $0.65 to $0.77.
• The Reserve Banks will increase the
monthly account maintenance fee from
$48.00 to $57.50.
• The Reserve Banks will increase the
joint custody origination surcharge from
$44 to $46.
• The Reserve Banks will increase the
claims adjustment fees from $0.75 to
$0.80.
FedLine® Access Solutions
• The Reserve Banks will increase
five existing monthly fees: (1) The
FedLine Web® Plus fee from $140 to
$160, (2) the FedLine Direct® Premier
fee from $6,500 to $6,700, (3) the
FedComplete® 200 Plus fee from $1,300
to $1,350, (4) the FedComplete 200
Premier fee from $1,375 to $1,425, and
(5) the FedMail® Fax a la carte fee from
$70 to $100.
• The Reserve Banks will implement
a legacy software fee to encourage
FedLine Direct customers to migrate to
a new messaging solution. The fee will
be introduced in July 2017 at $5,000 per
month and will increase in steps to
$20,000 per month by the end of 2017.
• The Reserve Banks will remove the
legacy email service from all FedLine
Web, Advantage®, Command®, and
Direct packages and introduce a $20per-month fee to purchase an a la carte
subscription to this service.
• The Reserve Banks will modify the
E-Payments Routing Directory and make
4 The per-item preincentive fee is the fee that the
Reserve Banks charge for transfers that do not
qualify for incentive discounts. The Tier 1 per-item
preincentive fee applies to the first 14,000 transfers,
the Tier 2 per-item preincentive fee applies to the
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$45 to $58. The Reserve Banks will also
change the name of the FedACH
Account Servicing fee to the FedACH
Participation fee.
• The Reserve Banks will eliminate
the on-us receipt credit of $0.0032 per
item.
• The Reserve Banks will increase the
FedACH Information Extract File fee
from $100 to $150 per file.
• The Reserve Banks will increase the
FedPayments Reporter fee
approximately 10 percent rounded to
the nearest $5 for each level of the tiered
package pricing. The Reserve Banks also
will introduce a new top tier, with a
$1,800 monthly fee, for a package that
includes more than 10,000 reports.
• The Reserve Banks will introduce a
fixed monthly fee and a volume-based
tiered pricing structure for the
FedGlobal ACH service. The tiered
pricing structure will include per-item
surcharges that are in addition to the
standard FedACH origination fee of
$0.0032 and vary according to the
transaction’s destination, as seen in
table 9. The top tier will cover monthly
origination volume of more than 500
items and include a $185 fixed monthly
fee and a per-item surcharge that is
$0.12 lower than current per-item fees.
The next tier will cover monthly
origination volume between 161 and
500 items and include a $60 fixed
monthly fee and a per-item surcharge
that is $0.13 higher than current peritem fees. The bottom tier will cover
monthly origination volume between 0
and 160 items and include a $20 fixed
monthly fee and a per-item surcharge
that is $0.38 higher than current peritem fees.
Fedwire Funds
• The Reserve Banks will increase the
Tier 1 per-item preincentive fee from
$0.790 to $0.820 per transaction,
increase the Tier 2 per-item
preincentive fee from $0.240 to $0.245,
and increase the Tier 3 per-item
preincentive fee from $0.155 to $0.170
per transaction.4
next 76,000 transfers, and the Tier 3 per-item
preincentive fee applies to any additional transfers.
The Reserve Banks apply an 80 percent incentive
discount to transfers over 60 percent of a customer’s
historic benchmark volume.
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associated changes to FedLine packages
and fees. A new automated download
directory service will be introduced and
available only to subscribers of plusand premier-level FedLine packages. A
la carte fees for additional directory
download codes, ranging from $75 to
$2,000 per month, will also be
introduced. In addition, the new lineup
of FedLine Exchange packages,
discussed below, will allow customers
that do not use FedLine for Federal
Reserve Financial Services to access the
directory.
• The Reserve Banks will introduce a
new FedLine Exchange® service, along
with two new associated packages: A
base-level and premier-level. The base
package will be priced at $40 per month
and include the manual download
directory service. The premier package
will be priced at $125 per month and
include both the manual and automated
download directory services.
• The Reserve Banks will introduce a
new FedMail package, priced at $85 per
month, which will include the same
services as those included in the
existing FedLine Exchange package to
ensure continuity of this service. All
existing FedLine Exchange subscribers
will be transitioned to the new FedMail
package and experience a fee increase of
$45.
5. 2017 Price Index—Figure 1
compares indexes of fees for the Reserve
Banks’ priced services with the GDP
price index.5 The price index for
Reserve Bank priced services is
projected to decrease less than 1 percent
in 2017 from the 2016 level. The price
index for Check 21 services is projected
to decrease approximately 3 percent.
The price index for the FedACH Service
is projected to increase nearly 1 percent.
The price index for the Fedwire Funds
and National Settlement Services is
projected to increase approximately 2
percent. The price index for the Fedwire
Securities Services is projected to
increase nearly 1 percent. For the period
2007 to 2017, the price index for total
priced services is expected to decrease
approximately 19 percent.
5 For the period 2007 to 2015, the GDP price
index increased 13 percent.
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B. Private Sector Adjustment Factor—
The imputed debt financing costs,
targeted ROE, and effective tax rate are
based on a U.S. publicly traded firm
market model.6 The method for
calculating the financing costs in the
PSAF requires determining the
appropriate imputed levels of debt and
equity and then applying the applicable
financing rates. In this process, a pro
forma balance sheet using estimated
assets and liabilities associated with the
Reserve Banks’ priced services is
developed, and the remaining elements
that would exist are imputed as if these
priced services were provided by a
private business firm. The same
generally accepted accounting
principles that apply to commercialentity financial statements apply to the
relevant elements in the priced services
pro forma financial statements.
6 Data for U.S. publicly traded firms is from the
Standard and Poor’s Compustat® database. This
database contains information on more than 6,000
U.S. publicly traded firms, which approximates the
entirety of the U.S. market.
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The portion of Federal Reserve assets
that will be used to provide priced
services during the coming year is
determined using information about
actual assets and projected disposals
and acquisitions. The priced portion of
these assets is determined based on the
allocation of depreciation and
amortization expenses of each asset
class. The priced portion of actual
Federal Reserve liabilities consists of
postemployment and postretirement
benefits, accounts payable, and other
liabilities. The priced portion of the
actual net pension asset or liability is
also included on the balance sheet.7
The equity financing rate is the
targeted ROE produced by the capital
asset pricing model (CAPM). In the
CAPM, the required rate of return on a
firm’s equity is equal to the return on a
risk-free asset plus a market risk
premium. The risk-free rate is based on
7 The pension assets are netted with the pension
liabilities and reported as a net asset or net liability
as required by ASC 715 Compensation—Retirement
Benefits.
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the three-month Treasury bill; the beta
is assumed to be equal to 1.0, which
approximates the risk of the market as
a whole; and the market risk premium
is based on the monthly returns in
excess of the risk-free rate over the most
recent 40 years. The resulting ROE
reflects the return a shareholder would
expect when investing 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 explicitly 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
performance results are greater or less
than the targeted ROE, income taxes are
adjusted using the effective tax rate.
Capital structure. The capital
structure is imputed based on the
imputed funding need (assets less
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liabilities), subject to minimum equity
constraints. Short-term debt is imputed
to fund the imputed short-term funding
need. Long-term debt and equity are
imputed to meet the priced services
long-term funding need at a ratio based
on the capital structure of the U.S.
publicly traded firm market. The level
of equity must meet the minimum
equity constraints, which follow the
FDIC requirements for a well-capitalized
institution. The priced services must
maintain equity of at least 5 percent of
total assets and 10 percent of riskweighted assets.8 Any equity imputed
that exceeds the amount needed to fund
the priced services’ assets and meet the
minimum equity constraints is offset by
a reduction in imputed long-term debt.
When imputed equity is larger than
what can be offset by imputed debt, the
excess is imputed as investments in
Treasury securities; income imputed on
these investments reduces the PSAF.
Application of the Payment System
Risk (PSR) Policy to the Fedwire
Services. The Board’s PSR policy
reflects the new international standards
for financial market infrastructures
(FMIs) developed by the Committee on
Payment and Settlement Systems and
the Technical Committee of the
International Organization of Securities
Commissions in the Principles for
Financial Market Infrastructures. The
revised policy retains the expectation
that the Fedwire Services meet or
exceed the applicable risk-management
standards. Principle 15 states that an
FMI should identify, monitor, and
manage general business risk and hold
sufficient liquid net assets funded by
equity to cover potential general
business losses so that it can continue
operations and services as a going
concern if those losses materialize.
Further, liquid net assets should at all
times be sufficient to ensure a recovery
or orderly wind-down of critical
operations and services. The Fedwire
Services do not face the risk that a
business shock would cause the service
to wind down in a disorderly manner
and disrupt the stability of the financial
system. In order to foster competition
with private-sector FMIs, however, the
8 The FDIC rule, which was adopted as final on
April 14, 2014, requires that well-capitalized
institutions meet or exceed the following standards:
(1) Total capital to risk-weighted assets ratio of at
least 10 percent, (2) tier 1 capital to risk-weighted
assets ratio of at least 8 percent, (3) common equity
tier 1 capital to risk-weighted assets ratio of at least
6.5 percent, and (4) a leverage ratio (tier 1 capital
to total assets) of at least 5 percent. Because all of
the Federal Reserve priced services’ equity on the
pro forma balance sheet qualifies as tier 1 capital,
only requirements 1 and 4 are binding. The FDIC
rule can be located at https://www.fdic.gov/news/
board/2014/2014-04-08_notice_dis_c_fr.pdf.
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Reserve Banks’ priced services will hold
six months of the Fedwire Funds
Service’s current operating expenses as
liquid financial assets and equity on the
pro forma balance sheet.9 Current
operating expenses are defined as
normal business operating expenses on
the income statement, less depreciation,
amortization, taxes, and interest on
debt. The Fedwire Funds Service’s six
months of current operating expenses
are computed based on its preliminary
2017 budget at $53.9 million. In 2017,
$14.1 million of equity was imputed to
meet the FDIC capital requirements. No
additional imputed equity was
necessary to meet the PSR policy
requirement.
Effective tax rate. Like the imputed
capital structure, the effective tax rate is
calculated based on data from U.S.
publicly traded firms. The tax rate is the
mean of the weighted average rates of
the U.S. publicly traded firm market
over the past 5 years.
Debt and equity financing. The
imputed short- and long-term debt
financing rates are derived from the
nonfinancial commercial paper rates
from the Federal Reserve Board’s H.15
Selected Interest Rates release (AA and
A2/P2) and the annual Merrill Lynch
Corporate & High Yield Index rate,
respectively. The rates for debt and
equity financing are applied to the
priced services estimated imputed
short-term debt, long-term debt, and
equity needed to finance short- and
long-term assets and meet equity
requirements.
The increase in the 2017 PSAF to
$16.6 million from $13.1 million in
2016 is primarily attributable to a $2.0
million increase in the cost of debt and
a $1.0 million increase in the return on
equity offset by a $0.3 million decrease
in the incremental return on imputed
equity necessary for PSR policy
compliance, all three of which were
driven primarily by increased imputed
funding needs arising from higher retail
float asset balances.
Projected 2017 Federal Reserve
priced-services assets, reflected in table
3, have increased $143.1 million from
2016. This increase is primarily due to
a $234.0 million increase in the balance
of imputed investments in federal funds
and a net $42.8 million increase in longterm assets, inclusive of pension, Bank
premises, furniture and equipment, and
leasehold improvements and long-term
prepayments. The increase was partially
9 This requirement does not apply to the Fedwire
Securities Service. There are no competitors to the
Fedwire Securities Service that would face such a
requirement, and imposing such a requirement
when pricing the securities services could
artificially increase the cost of these services.
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offset by an $80.0 million decrease in
items in process of collection and a
$55.8 million decrease in imputed
investments in Treasury securities. The
significant increase in the imputed
investments in federal funds balance is
related to a reduction in debit float due
to new deposit deadlines associated
with the Endpoint-Culled ICL deposit
option deadlines implemented in July
2016, which are intended to reduce float
and items in process of collection.
These balances had increased
significantly as a result of the PSR
policy implementation in 2015. The
Endpoint-Culled ICL deposit option
defers the portion of deposits the
Federal Reserve is unable to present
after a specific deadline during the
processing cycle to limit instances
where same-day credit is offered under
the PSR policy for items that cannot be
collected same day. The resulting
balance of 2017 imputed investments in
federal funds was sufficient to comply
with the PSR policy expectations for
Fedwire Funds, and no additional costs
were incurred. As shown in table 3,
imputed equity for 2017 is $58.6
million, an increase of $4.8 million from
the equity imputed for 2016. In
accordance with ASC 715, this amount
includes an accumulated other
comprehensive loss of $635.1 million.
Table 4 reflects the portion of shortand long-term assets that must be
financed with actual or imputed
liabilities and equity. Debt and equity
imputed to fund the 2017 priced
services assets within the observed
market leverage ratio produced an
equity level that did not meet the FDIC
minimum equity requirements. As a
result, additional equity was imputed to
meet the FDIC requirements, and
imputed long-term debt was reduced.
The ratio of capital to risk-weighted
assets meets the required 10 percent of
risk-weighted assets, and equity exceeds
5 percent of total assets (table 6). In
2017, long-term debt and equity was
imputed to meet the asset funding
requirements and reflects the leverage
ratio observed in the market; additional
equity of $14.1 million was required
(table 5) to meet the market leverage
ratio.
Table 5 shows the derivation of the
2017 and 2016 PSAF. Financing costs
for 2017 are $2.7 million higher than in
2016. In addition to the increase in the
levels of debt and equity mentioned
above, the cost of equity increased in
2017 to 41.6 percent from 41.5 percent
in 2016. The increased equity balance
and the slightly higher cost of equity
result in a pretax ROE that is $1.0
million higher than the 2016 pretax
ROE. Imputed sales taxes increased to
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$3.2 million in 2017 from $2.8 million
in 2016. The priced services portion of
the Board’s expenses increased $0.4
million to $5.4 million in 2017. The
effective income tax rate used in 2017
increased to 22.7 percent from 21.6
percent in 2016.
TABLE 3—COMPARISON OF PRO FORMA BALANCE SHEETS FOR BUDGETED FEDERAL RESERVE PRICED SERVICES
[Millions of dollars—projected average for year]
2017
Short-term assets:
Receivables ..........................................................................................................................
Materials and supplies ..........................................................................................................
Prepaid expenses .................................................................................................................
Items in process of collection 10 ...........................................................................................
2016
Change
$36.6
0.6
11.2
241.0
$35.6
0.5
10.2
321.0
$1.1
0.1
1.0
(80.0)
289.4
367.2
(77.9)
........................
245.0
55.8
11.0
(55.8)
234.0
Total imputed investments ............................................................................................
Long-term assets:
Premises 12 ...........................................................................................................................
Furniture and equipment ......................................................................................................
Leasehold improvements and long-term prepayments ........................................................
Pension asset .......................................................................................................................
Deferred tax asset ................................................................................................................
245.0
66.8
178.2
128.7
39.0
104.8
10.9
186.1
111.0
38.5
89.5
........................
187.9
17.7
0.5
15.3
10.9
(1.8)
Total long-term assets ...................................................................................................
469.6
426.8
42.8
Total assets ............................................................................................................
1,003.9
860.9
143.1
Short-term liabilities:
Deferred credit items ............................................................................................................
Short-term debt .....................................................................................................................
Short-term payables .............................................................................................................
486.0
18.1
30.2
332.0
19.0
27.2
154.0
(0.9)
3.0
Total short-term assets .................................................................................................
Imputed investments: 11
Imputed investment in Treasury Securities ..........................................................................
Imputed investment in Fed Funds ........................................................................................
Total short-term liabilities ..............................................................................................
Long-term liabilities:
Pension liability .....................................................................................................................
Long-term debt .....................................................................................................................
Postemployment/postretirement benefits and net pension liabilities 13 ................................
534.4
387.2
156.1
........................
48.4
362.5
17.6
0.0
411.3
(17.6)
48.4
48.7
Total liabilities .........................................................................................................
Equity 14 .......................................................................................................................................
945.3
58.6
807.1
53.8
138.3
4.8
Total liabilities and equity .....................................................................................................
1,003.9
860.9
143.1
TABLE 4—IMPUTED FUNDING FOR PRICED-SERVICES ASSETS
[Millions of dollars]
2017
A. Short-term asset financing:
Short-term assets to be financed:
Receivables ...............................................................................................................................................
Materials and supplies ..............................................................................................................................
Prepaid expenses ......................................................................................................................................
mstockstill on DSK3G9T082PROD with NOTICES
Total short-term assets to be financed ............................................................................................................
Short-term payables ..................................................................................................................................
Net short-term assets to be financed ...............................................................................................................
Imputed short-term debt financing 15 ................................................................................................................
B. Long-term asset financing:
Long-term assets to be financed:
Premises ....................................................................................................................................................
10 Credit float, which represents the difference
between items in process of collection and deferred
credit items, occurs when the Reserve Banks debit
the paying bank for transactions prior to providing
credit to the depositing bank. Float is directly
estimated at the service level.
11 Consistent with the Board’s PSR policy, the
Reserve Banks; priced services will hold six months
of the Fedwire Funds Service’s current operating
expenses as liquid net financial assets and equity
on the pro forma balance sheet. Six months of the
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Fedwire Funds Service’s projected current
operating expenses is $53.9 million. In 2017, $58.6
million of equity was imputed to meet the
regulatory capital requirements.
12 Includes the allocation of Board of Governors
assets to priced services of $1.2 million for 2017
and $1.3 million for 2016.
13 Includes the allocation of Board of Governors
liabilities to priced services of $0.6 million for 2017
and 2016.
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2016
$36.6
0.6
11.2
$35.6
0.5
10.2
48.4
30.2
18.1
18.1
46.2
27.2
19.0
19.0
........................
128.7
111.0
14 Includes an accumulated other comprehensive
loss of $635.1 million for 2017 and $666.1 million
for 2016, 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.
See table 5 for calculation of required imputed
equity amount.
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TABLE 4—IMPUTED FUNDING FOR PRICED-SERVICES ASSETS—Continued
[Millions of dollars]
2017
2016
Furniture and equipment ...........................................................................................................................
Leasehold improvements and long-term prepayments .............................................................................
Pension asset ............................................................................................................................................
Deferred tax asset .....................................................................................................................................
39.0
104.8
10.9
186.1
38.5
89.5
........................
187.9
Total long-term assets to be financed ..............................................................................................................
Pension liability ..........................................................................................................................................
Postemployment/postretirement benefits and net pension liabilities ........................................................
Net long-term assets to be financed .........................................................................................................
Imputed long-term debt 15 .........................................................................................................................
Imputed equity 15 .......................................................................................................................................
469.6
........................
362.5
107.0
48.4
58.6
426.8
17.6
411.3
(2.0)
........................
53.8
Total long-term financing ...................................................................................................................
107.0
53.8
TABLE 5—DERIVATION OF THE 2017 AND 2016 PSAF
[Dollars in millions]
2017
Debt
A. Imputed long-term debt and equity:
Net long-term assets to finance .......................................
Capital structure observed in market ...............................
2016
Equity
Debt
Equity
C. Incremental cost of PSR policy:
Equity to meet policy ........................................................
D. Other required PSAF costs:
Sales taxes .......................................................................
Board of Governors expenses .........................................
mstockstill on DSK3G9T082PROD with NOTICES
E. Total PSAF:
As a percent of assets .....................................................
As a percent of expenses ................................................
F. Tax rates: ............................................................................
15 See
table 5 for calculation.
minimum equity constraints are not met after
imputing equity based on the capital structure
observed in the market, additional equity is
imputed to meet these constraints. The long-term
funding need was met by imputing long-term debt
and equity based on the capital structure observed
in the market (see tables 4 and 6). In 2017, the
amount of imputed equity exceeded the minimum
equity requirements for risk-weighted assets.
16 If
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$(2.0)
58.5%
$(2.0)
41.5%
$62.5
$44.5
$(1.2)
$(0.8)
..............................
58.6
..............................
51.1
(14.1)
—
—
14.1
58.6
—
1.2
—
—
(1.2)
(2.0)
53.1
$48.4
$58.6
—
$51.1
$18.1 × 0.6% =
48.4 × 4.0% =
58.6 × 10.2% =
$0.1
1.9
6.0
$19.0 × 0.3% =
— × 4.2% =
51.1 × 9.8% =
$0.1
—
5.0
$8.0
..............................
$5.1
$ — × 10.2% =
$—
$2.7 × 9.8% =
$0.3
$3.2
5.4
..............................
..............................
..............................
8.6
$2.8
5.0
..............................
..............................
..............................
7.8
..............................
Total imputed long-term debt and equity ...........
B. Cost of capital:
Elements of capital costs:
Short-term debt 19 ......................................................
Long-term debt 19 ......................................................
Equity 20 .....................................................................
$107.0
41.6%
..............................
Pre-adjusted long-term debt and equity ...........................
Equity adjustments: 16
Equity to meet capital requirements .........................
Adjustment to debt and equity funding given capital
requirements 17 ......................................................
Adjusted equity balance ............................................
Equity to meet capital requirements 18 ......................
$107.0
58.4%
$16.6
..............................
$13.1
..............................
..............................
..............................
1.7%
3.9%
22.7%
..............................
..............................
..............................
1.5%
3.6%
21.6%
17 Equity adjustment offsets are due to a shift of
long-term debt funding to equity in order to meet
FDIC capital requirements for well-capitalized
institutions.
18 Additional equity in excess of that needed to
fund priced services assets is offset by an asset
balance of imputed investments in treasury
securities.
19 Imputed short-term debt and long-term debt are
computed at table 4.
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20 The 2017 ROE is equal to a risk-free rate plus
a risk premium (beta * market risk premium). The
2017 after-tax CAPM ROE is calculated as 0.30% +
(1.0 * 7.59%) = 7.89%. Using a tax rate of 22.7%,
the after-tax ROE is converted into a pretax ROE,
which results in a pretax ROE of (7.89%/(1–22.7%))
= 10.21%. Calculations may be affected by
rounding.
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TABLE 6—COMPUTATION OF 2017 CAPITAL ADEQUACY FOR FEDERAL RESERVE PRICED SERVICES
[Dollars in millions]
Assets
Risk weight
Weighted
assets
($)
Imputed investments:
1-Year Treasury securities 21 ................................................................................................
Federal funds 22 ....................................................................................................................
$—
245.0
—
0.2
—
49.0
Total imputed investments ............................................................................................
Receivables .................................................................................................................................
Materials and supplies .................................................................................................................
Prepaid expenses ........................................................................................................................
Items in process of collection ......................................................................................................
Premises ......................................................................................................................................
Furniture and equipment .............................................................................................................
Leasehold improvements and long-term prepayments ...............................................................
Pension asset ..............................................................................................................................
Deferred tax asset .......................................................................................................................
245.0
36.6
0.6
11.2
241.0
128.7
39.0
104.8
10.9
186.1
........................
0.2
1.0
1.0
0.2
1.0
1.0
1.0
1.0
1.0
49.0
7.3
0.6
11.2
48.2
128.7
39.0
104.8
10.9
186.1
Total ......................................................................................................................................
Imputed equity:
Capital to risk-weighted assets ............................................................................................
Capital to total assets ...........................................................................................................
1,003.9
........................
585.8
C. Check Service — Table 7 shows the
2015 actual, 2016 estimated, and 2017
10.0%
5.8%
budgeted cost-recovery performance for
the commercial check service.
TABLE 7—CHECK SERVICE PRO FORMA COST AND REVENUE PERFORMANCE
[Dollars in millions]
1
2015 (actual) ........................................................................
2016 (estimate) ....................................................................
2017 (budget) .......................................................................
mstockstill on DSK3G9T082PROD with NOTICES
1. 2016 Estimate—The Reserve Banks
estimate that the check service will
recover 109.7 percent of total expenses
and targeted ROE, compared with a
2016 budgeted recovery rate of 105.7
percent. Greater-than-expected check
volumes processed by the Reserve
Banks and lower-than-expected costs
have influenced significantly the check
service’s cost recovery.
The decline in Reserve Bank check
volume, which is attributable to the
21 If minimum equity constraints are not met after
imputing equity based on all other financial
statement components, additional equity is imputed
to meet these constraints. Additional equity
imputed to meet minimum equity requirements is
invested solely in Treasury securities. 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 https://
www.federalreserve.gov/releases/h15/data.htm.
22 The investments are imputed based on the
amounts arising from the collection of items prior
to providing credit according to established
availability schedules.
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Total expense
2
3
160.6
152.9
141.2
140.2
138.1
133.7
decline in the number of checks written
generally, was not as great as
anticipated. Through August, total
commercial forward check volume is 3.9
percent lower and total commercial
return check volume is 3.3 percent
lower than for the same period last year.
For full-year 2016, the Reserve Banks
estimate that their total forward check
volume will decline 5.2 percent
(compared with a budgeted decline of
6.2 percent) and their total return check
volume will decline 6.8 percent
(compared with a budgeted decline of
12.7 percent) from 2015 levels.23
2. 2017 Pricing—The Reserve Banks
expect the check service to recover
104.5 percent of total expenses and
targeted ROE in 2017. The Reserve
Banks project revenue to be $141.2
23 Total Reserve Bank forward check volumes are
expected to drop from 5.5 billion in 2015 to 5.2
billion in 2016. Total Reserve Bank return check
volumes are expected to drop from 33.2 million in
2015 to 30.9 million in 2016.
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20.4
14.8
7.5
Targeted ROE
Recovery rate
after targeted
ROE
(%)
[1/(2 + 4)]
4
Revenue
Year
Net income
(ROE)
[1–2]
5
2.0
1.3
1.4
113.0
109.7
104.5
million, a decline of 7.7 percent from
the 2016 estimate. This decline is driven
largely by the Reserve Banks’
restructured FedForward, FedReturn,
and FedReceipt fee schedules, discussed
below.24 Total expenses for the check
service are projected to decrease to
$133.7 million, a decline of $4.4
million, or 3.2 percent, from 2016
expenses primarily due to reduced
operating costs, including cost savings
associated with increased efficiencies of
the Reserve Banks’ customer support
services for the FedACH and check
service lines.
24 This decline is also driven, in part, by
anticipated continuing decline in the number of
checks written generally. The Reserve Banks
estimate that total commercial forward check
volumes in 2017 will decline 5.0 percent, to 4.9
billion, and total commercial return check volumes
will decline 10.1 percent to 27.8 million in 2017.
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mstockstill on DSK3G9T082PROD with NOTICES
In July 2016, the Reserve Banks
announced restructured FedForward,
FedReturn and FedReceipt fee
schedules designed to reflect the
efficiencies of electronic check
processing and better serve the needs of
the marketplace in today’s electronic
environment.25 The Reserve Banks
announced the restructured fee
schedules earlier in the year to provide
customers with sufficient notice.26
Specifically, the Reserve Banks
announced simplified FedFoward and
FedReturn deposit products. The
simplified deposit products will offer
two fixed-fee options: a per-image cash
letter (ICL) fee and a daily subscription
fee.27 Both options will offer standard
and premium variations, with premium
variations offering higher fixed and
lower per-item fees than the standard
variations. Both options will also
include per-item fees, based on a
modified volume-based tiered pricing
structure, with tiers defined by volume
of items received by a chartered
institution from the Reserve Banks.28
Tiers for the three premium variations
of the daily subscription fee deposit
options, FedFoward Premium Daily Fee
A, B, and C and FedReturn Premium
Daily Fee A, will be based only on
volume received by a chartered
institution from a subset of the Reserve
Banks’ customers.29 The volumes used
to define all tiers will be evaluated and
set annually as part of the Board’s
approval of annual fee schedules.30
The Premium Daily Fee deposit
options will include a fifth tier, Tier 0,
comprised of routing numbers for which
the Reserve Banks currently receive
little to no volume from the specified
subset of Reserve Bank customers (and
therefore cannot currently be assigned
to the other tiers with sufficient
certainty). Tier 0 will also be evaluated
annually, along with all other tiers, so
that if volume migrates to routing
numbers in tier 0 (enabling more
information on which to assign a tier)
those routing numbers will be moved to
the appropriate tier.
In October 2016, the Reserve Banks
announced minor modifications to the
Premium Daily Fee products.31 To
clarify Tier 0’s transitional purpose, the
Reserve Banks announced that routing
numbers cannot be placed in Tier 0 if
they have previously been assigned to
one of the other tiers. Based on
additional review of Tier 0’s
composition, the Reserve Banks also
announced that a routing number will
only be assigned to Tier 0 if the
chartered institution receives a
minimum of 150 items daily.32 As a
result, the Reserve Banks determined
that approximately 3,800 routing
numbers initially included in Tier 0
could more appropriately be placed in
another tier, Tier 4.33
The Reserve Banks also announced
that most sorted-deposit options will be
eliminated, including the Fine Sort ICL,
Deferred Fine Sort ICL, and Fixed
Mixed ICL deposit options.34 The
Reserve Banks announced that they will
not, however, modify the EndpointCulled ICL deposit option, the Dollar
Cut Mixed ICL (renamed ‘‘Dollar-Culled
ICL’’) option, or the Deferred Mixed ICL
(renamed ‘‘Deferred ICL’’) option.35 The
Reserve Banks will continue to allow
separately sorted Treasury Check, Postal
Money Order, and Savings Bond ICLs.
Finally, the Reserve Banks announced
modifications to their FedReceipt
product, including reduced FedReceipt
fees for forward and return items and
elimination of the FedReceipt Plus
Deposit Discount for both FedForward
and FedReturn deposits.36 The Reserve
Banks also announced that they will
modify volume tiers for their Courtesy
Delivery service (renamed ‘‘Accelerated
Delivery Service’’) and that the Retail
Payments Premium Receiver discount
will be applied to items deposited by a
chartered institution rather than on
items received. Both products remain
otherwise unchanged.
The Reserve Banks estimate that the
price changes will result in a 3.5 percent
average price decrease for check
customers.
The primary risks to the Reserve
Banks’ ability to achieve budgeted 2017
cost recovery for the check service
include lower-than-expected check
volume due to reductions in check
writing overall and competition from
correspondent banks, aggregators, and
direct exchanges, which would result in
lower-than-anticipated revenue.
D. FedACH Service—Table 8 shows
the 2015 actual, 2016 estimate, and 2017
budgeted cost-recovery performance for
the commercial FedACH service.
25 As part of the Board’s approval of the Reserve
Banks’ 2016 check fee schedules, the Board noted
that the Reserve Banks would announce changes to
the check service to reflect the efficiencies of
today’s electronic check processing environment.
79 FR 65937, 70785 (Nov. 16, 2015).
26 A full summary of the modifications was
included with Reserve Bank’s announcement and is
available at https://frbservices.org/files/servicefees/
pdf/071116_2017_check_pricing_summary_of_
changes.pdf. The Reserve Banks’ modified fee
schedules are available at https://
www.frbservices.org/servicefees/check_services_
2016.html.
27 The per-ICL fee structure offers a fixed fee for
each deposited image cash letter and a per-item fee
for each item in the cash letter. The subscription
structure offers a daily subscription fee and a peritem fee for each item. Per-item fees are determined
by the Reserve Banks’ volume-based tiered pricing
structure.
28 Under the tiered pricing structure, depositors
pay a variable per-item fee based on the endpoint
to which an item is being delivered. Tiers are
currently determined at the individual routing
number.
29 The Reserve Banks believe the top 15
customers, which account for approximately 33
percent of the Reserve Banks’ deposit volume,
represent the most-likely users of the Premium
Daily Fee deposit options because of the high daily
fixed fees and lower per-item fees.
30 The tiers for 2017 are available at https://
www.frbservices.org/servicefees/check21_endpoint_
listing.html.
31 For the announcement, see https://
frbservices.org/files/communications/pdf/check/
100316-check-modification-announcement.pdf.
32 The Reserve Banks determined after further
analysis that a floor of 150 items daily was
appropriate to avoid placing small institutions in
Tier 0 because of limited total volumes (institutions
below the floor receive an average of only 47 items
daily).
33 To minimize any customer impact of these
changes, the Reserve Banks also reduced the Tier
4 per-item fees and daily fixed fees for two of the
Premium Daily Fee deposit options.
34 In a paper check processing environment, the
fine-sort products allowed the Reserve Banks to
gain efficiencies because the checks did not require
processing on reader-sorters. In today’s electronic
check processing environment, all ICLs are
processed through the Reserve Banks’ electronic
system in the same manner, and the Reserve Banks
do not gain any efficiencies by having the
depositing bank fine-sort electronic checks before
deposit.
35 Under the Endpoint-Culled ICL deposit option
(offered only at 12:00 p.m. ET), items drawn on
routing numbers enrolled in the Reserve Banks’
Premium Presentment service and those presented
as substitute checks are culled from the cash letter
by the Reserve Banks and placed into a Deferred
Imaged Cash Letter, with depositors receiving nextday credit availability on those items. The product
allows the Reserve Banks to limit instances where
same-day credit is offered for items that cannot be
collected same day (the Reserve Banks similarly
cull items deposited on the 12:00 p.m. ET deposit
deadline offered as part of the Premium Daily Fee
deposit options). Under the Deferred ICL deposit
option, credit for all items deposited is deferred
until the next business day. Under the DollarCulled ICL deposit option, items written for less
than $1,000, plus all items for $1,000 or more that
are drawn on a substitute check endpoint, are
culled from the cash letter by the Reserve Banks
and placed into a Deferred Imaged Cash Letter, with
depositors receiving the next-day credit availability
of that deposit option. Items of $1,000 or more
(except for those that will be presented as substitute
checks) are kept in the original cash letter, with
same-day credit availability at the next deadline
according to the Federal Reserve Policy on Payment
System Risk.
36 The Reserve Banks implemented the deposit
discount structure to encourage banks to transition
from paper to electronic items. With the Reserve
Banks presenting and returning more than 99
percent of items electronically, the discount is no
longer necessary to encourage banks to move away
from paper.
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Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
TABLE 8—FEDACH SERVICE PRO FORMA COST AND REVENUE PERFORMANCE
[Dollars in millions]
Total expense
1
2
3
2015 (actual) ........................................................................
2016 (estimate) ....................................................................
2017 (budget) .......................................................................
1. 2016 Estimate—The Reserve Banks
estimate that the FedACH service will
recover 98.8 percent of total expenses
and targeted ROE, compared with a
2016 budgeted recovery rate of 99.5
percent. Through August, FedACH
commercial origination and receipt
volume was 5.8 percent higher than it
was during the same period last year.
For full-year 2016 the Reserve Banks
estimate that FedACH commercial
origination and receipt volume will
increase 4.9 percent, compared with a
budgeted increase of 4.5 percent.
Although volume is higher than
originally projected, the Reserve Banks
estimate lower-than-budgeted 2016 cost
recovery due to higher than anticipated
environmental costs such as an increase
in pension expense and refinement in
the accounting treatment between
capital and expenses for the FedACH
technology modernization program.37
2. 2017 Pricing—The Reserve Banks
expect the FedACH service to recover
95.5 percent of total expenses and
targeted ROE in 2017. FedACH
commercial origination and receipt
volume is projected to grow 5.7 percent,
contributing to an increase of $9.7
125.5
130.7
140.4
122.8
131.0
145.4
million in total revenue from the 2016
estimate. Total expenses are budgeted to
increase $14.4 million from 2016
expenses, primarily because of costs
associated with the development of a
new FedACH technology platform.
The Reserve Banks will increase the
minimum monthly fee for forward
origination from $45 to $50 and the
minimum monthly fee for receipt from
$35 to $40.38 The Reserve Banks also
will increase the FedACH Account
Servicing Fee from $45 to $58 and
change the fee name to the ‘‘FedACH
Participation fee,’’ to reflect more
accurately the intention of the fee,
which is to recover fixed costs related
to participation in the FedACH network.
The Reserve Banks also will eliminate
the on-us receipt credit of $0.0032 per
item. All on-us items will be charged
the current FedACH receipt per-item fee
of $0.0032 per item.
The Reserve Banks will increase the
FedACH Information Extract File fee
from $100 to $150 per file. The Reserve
Banks also will increase the
FedPayments Reporter fee
approximately 10 percent rounded to
the nearest $5 for each level of the tiered
Targeted ROE
Recovery rate
after targeted
ROE
%,
[1/(2 + 4)]
4
Revenue
Year
Net income
(ROE)
[1–2]
5
2.7
¥0.3
¥5.1
1.8
1.3
1.6
100.7
98.8
95.5
package pricing. They also will
introduce a new top tier, with a $1,800
monthly fee, for a package that includes
more than 10,000 reports.
Further, the Reserve Banks will
introduce a fixed monthly fee and a
volume-based tiered pricing structure
for the FedGlobal ACH service.39 The
tiered pricing structure will include peritem surcharges that are in addition to
the standard FedACH origination fee of
$0.0032 and vary according to the
transaction’s destination, as seen in
table 9. The top tier will cover monthly
origination volume over 500 items and
include a $185 fixed monthly fee and a
per-item surcharge that is $0.12 lower
than current per-item fees. The next tier
will cover monthly origination volume
between 161 and 500 items and include
a $60 fixed monthly fee and a per-item
surcharge that is $0.13 higher than
current per-item fees. The bottom tier
will cover monthly origination volume
between 0 and 160 items and include a
$20 fixed monthly fee and a per-item
surcharge that is $0.38 higher than
current per-item fees.
TABLE 9—FEDGLOBAL ACH SERVICE VOLUME-BASED ORIGINATION SURCHARGES 40
Volume
(items)
Fixed
monthly fee
More than 500 ..................................................
161–500 ...........................................................
0–160 ...............................................................
Canada
(per transaction)
Mexico
(per transaction)
Panama
(per transaction)
Europe
(per transaction)
$0.50
0.75
1.00
$0.55
0.80
1.05
$0.60
0.85
1.10
$1.13
1.38
1.63
$185
60
20
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The Reserve Banks estimate that the
price changes will result in a 5.3 percent
average price increase for FedACH
customers.
While the Reserve Banks are not
budgeted to fully recover costs in 2017,
they are expected to fully recover costs
37 The Reserve Banks have been engaged in a
multiyear technology initiative to modernize the
FedACH processing platform by migrating the
service from a mainframe system to a distributed
computing environment. In 2016, the Reserve Banks
chose a commercially available option as their
processing solution to modernize the FedACH
platform.
38 Any originating depository financial institution
(ODFI) incurring less than $50 for the following fees
will be charged the difference to reach the
minimum: Forward value and nonvalue item
origination fees, FedGlobal ACH origination
surcharges, and FedACH SameDay forward
origination surcharges.
Any receiving depository financial institution
(RDFI) that incurs less than $40 in receipt fees and
originates forward value and nonvalue items
incurring less than $50 in origination fees will only
be charged the difference in the origination fee to
reach the minimum monthly origination fee of $50.
Any RDFI that incurs less than $40 in receipt fees
and is not originating forward value and nonvalue
items will incur the $40 minimum monthly fee for
receipt.
39 The FedGlobal ACH pricing changes meet the
Federal Reserve Board’s guidance on the Reserve
Banks’ use of volume-based pricing for electronic
payment services and products. 62 FR 14146
(March 25, 1997) (FRB Docket No. R–0967).
40 These per-item surcharges are in addition to the
standard domestic FedACH origination fees.
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following finalization of the FedACH
technology modernization project. The
Reserve Banks’ FedACH fee increases
balance raising fees dramatically during
a temporary period of increased costs
associated with a defined technology
upgrade that will be expected to result
in significant over recovery following
this defined period. The approach to
moderately increase fees only is
consistent with a multi-year strategy to
minimize pricing volatility and provide
long-term price stability for customers
while undertaking the ongoing
technology upgrade that will result in
FedACH incurring higher expenses over
the next few years.
The primary risks to the Reserve
Banks’ ability to achieve budgeted 2017
cost recovery for the FedACH service
are cost overruns associated with
unanticipated problems related to
efforts to modernize the FedACH
processing platform and higher-thanexpected support and overhead costs.
Other risks include lower-than-expected
volume and associated revenue due to
unanticipated mergers and acquisitions
and loss of market share due to direct
exchanges and a shift of volume to the
private-sector operator.
E. Fedwire Funds and National
Settlement Services—Table 10 shows
the 2015 actual, 2016 estimate, and 2017
budgeted cost-recovery performance for
the Fedwire Funds and National
Settlement Services.
TABLE 10—FEDWIRE FUNDS AND NATIONAL SETTLEMENT SERVICES PRO FORMA COST AND REVENUE PERFORMANCE
[Dollars in millions]
1
2015 (actual) ........................................................................
2016 (estimate) ....................................................................
2017 (budget) .......................................................................
Total expense
2
3
116.0
123.1
128.8
110.1
118.0
126.3
5.9
5.1
2.6
Targeted ROE
Recovery rate
after targeted
ROE
(%)
[1/(2 + 4)]
4
Revenue
Year
Net income
(ROE)
[1–2]
5
1.6
1.3
1.3
103.9
103.2
101.0
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1. 2016 Estimate—The Reserve Banks
estimate that the Fedwire Funds and
National Settlement Services will
recover 103.2 percent of total expenses
and targeted ROE, compared with a
2016 budgeted recovery rate of 99.4
percent. Through August, Fedwire
Funds Service online volume was 3.6
percent higher than for the same period
last year. For full-year 2016, the Reserve
Banks estimate Fedwire Funds Service
online volume to increase 1.9 percent
from 2015 levels, compared with the 0.3
percent volume decrease that had been
budgeted. The Reserve Banks do not
expect the volume growth in 2015 and
early 2016 to continue at that level
through year-end. Through August,
National Settlement Service settlement
file volume was 1.0 percent lower than
for the same period last year, and
settlement entry volume was 3.0 percent
lower. For the full year, the Reserve
Banks estimate that settlement file
volume will decrease 1.1 percent
(compared with a budgeted 5.3 percent
increase) and settlement entry volume
will decrease 4.0 percent from 2015
levels (compared with a budgeted 0.8
percent decrease). NSS settlement file
and entry volumes are anticipated to be
lower than budgeted, as the onboarding
of a new arrangement originally
expected to occur in the fourth quarter
of 2016 has now been delayed until
2017.
2. 2017 Pricing—The Reserve Banks
expect the Fedwire Funds and National
Settlement Services to recover 101.0
percent of total expenses and targeted
ROE. Revenue is projected to be $128.8
million, an increase of 4.6 percent from
the 2016 estimate. The Reserve Banks
project total expenses to be $8.3 million
higher than the 2016 expenses,
primarily because of capitalized
software costs associated with the
Fedwire Funds modernization program
that will be amortized until January
2022 and other costs related to new
resiliency initiatives.
The Reserve Banks will adjust the
incentive pricing fees for the Fedwire
Funds Service by increasing the Tier 1
per-item preincentive fee (the fee before
volume discounts are applied) from
$0.790 to $0.820, increasing the Tier 2
per-item preincentive fee from $0.240 to
$0.245, and increasing the Tier 3 peritem preincentive fee from $0.155 to
$0.170.41 The Reserve Banks also will
increase the surcharge for offline
transactions from $55 to $60. The
Reserve Banks estimate that the price
changes will result in a 3.3 percent
average price increase for Fedwire
Funds customers.
The Reserve Banks will not change
National Settlement Service fees for
2017.
The primary risks to the Reserve
Banks’ ability to achieve budgeted 2017
cost recovery for these services are cost
overruns from new initiatives to
improve resiliency and operational
functionality.
F. Fedwire Securities Service—Table
11 shows the 2015 actual, 2016
estimate, and 2017 budgeted cost
recovery performance for the Fedwire
Securities Service.42
41 The per-item preincentive fee is the fee that the
Reserve Banks charge for transfers that do not
qualify for incentive discounts. The Tier 1 per-item
preincentive fee applies to the first 14,000 transfers,
the Tier 2 per-item preincentive fee applies to the
next 76,000 transfers, and the Tier 3 per-item
preincentive fee applies to any additional transfers.
The Reserve Banks apply an 80 percent incentive
discount to transfers over 60 percent of a customer’s
historic benchmark volume.
42 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 consists of
revenues, expenses, and volumes associated with
the transfer of all non-Treasury securities. For
Treasury securities, the U.S. Treasury assesses fees
for the securities transfer component of the service.
The Reserve Banks assess a fee for the funds
settlement component of a Treasury securities
transfer; this component is not treated as a priced
service.
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TABLE 11—FEDWIRE SECURITIES SERVICE PRO FORMA COST AND REVENUE PERFORMANCE
[Dollars in millions]
1
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2015 (actual) ........................................................................
2016 (estimate) ....................................................................
2017 (budget) .......................................................................
1. 2016 Estimate—The Reserve Banks
estimate that the Fedwire Securities
Service will recover 97.6 percent of total
expenses and targeted ROE, close to the
2016 budgeted recovery rate of 97.5
percent.
Through August, Fedwire Securities
Service online agency transfer volume
was 13.1 percent lower than during the
same period last year. For full-year
2016, the Reserve Banks estimate
Fedwire Securities Service online
agency transfer volume will decline 13.5
percent from 2015 levels, compared
with a budgeted decline of 5.4 percent.
The lower-than-expected online agency
transfer volume resulted from lowerthan-projected Agency debt issuance, as
Fannie Mae and Freddie Mac continue
to reduce the overall size of their
portfolios in accordance with Federal
Housing Finance Agency guidelines. In
addition, new mortgage originations and
mortgage paydowns from refinancing
activity are expected to decline before
year-end if interest rates rise in the
fourth quarter, which will result in
falling levels of issuance and settlement
activity for agency mortgage-backed
securities over Fedwire Securities.
Through August, account maintenance
volume was 4.4 percent lower than
during the same period last year. For the
full year 2016, the Reserve Banks
estimate that account maintenance
volume will decline 5.0 percent over
2015 levels, compared with a budgeted
decline of 8.8 percent. The higher
account maintenance volume is the
result of conservative estimates for
customer account closures that have not
materialized.
2. 2017 Pricing—The Reserve Banks
expect the Fedwire Securities Service to
recover 97.5 percent of total expenses
and targeted ROE in 2017. The Reserve
Banks project that online agency
transfer activity will decline 7.5 percent
in 2017, the number of accounts
maintained will decrease 7.4 percent,
and the number of agency issues
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Total expense
2
3
27.1
25.8
29.0
24.7
26.2
29.4
maintained will decrease 2.4 percent.43
The projected decline in both online
transfer and account maintenance
volume in 2017 reflects, in part, an
anticipated drop in demand resulting
from JP Morgan Chase’s exit from the
U.S. government securities clearing and
settlement business for its broker-dealer
services by mid-2018.44 Moreover, as in
2016, the Reserve Banks continue to
project a decrease in online transfers as
interest rates may possibly increase,
leading to less mortgage refinancing,
and, in turn, reducing issuances of
mortgage-backed securities. In addition,
the reduction in agency debt issuance
will continue to reflect a reduction in
government-sponsored enterprise
portfolios, as required by the U.S.
Treasury and the Federal Housing
Finance Agency, leading to a reduced
funding need for new debt issuance.45
New settlement logic launched by the
Fixed Income Clearing Corporation in
January 2016, and further changes in
mid-2017 are also expected to reduce
the number of agency debt transfers over
the Fedwire Securities Service.46
Revenue is projected to be $29.0
million, an increase of 12.4 percent from
the 2016 estimate; this projected rise in
revenue results from higher fees,
43 The online transfer fee, monthly account
maintenance fee, and monthly issue maintenance
fee accounted for approximately 93 percent of total
Fedwire Securities Service revenue through June
2016.
44 JP Morgan Chase announced in July 2016, its
intent to exit the government securities clearing and
settlement business. It is expected that the exit will
result in significant reductions of transfer volume
over Fedwire Securities as more transactions shift
to in-house activity at the remaining custodian
banks.
45 Government-sponsored enterprises are
reducing their retained portfolio by 15 percent
annually through 2018, as mandated by the Senior
Preferred Stock Purchase Agreements, until each
portfolio reaches a target level of $250 billion.
Further information on these agreements can be
found at: https://www.fhfa.gov/Conservatorship/
Pages/Senior-Preferred-Stock-PurchaseAgreements.aspx.
46 Information on the Fixed Income Clearing
Corporation’s new settlement logic can be found at
https://www.dtcc.com/∼/media/Files/pdf/2015/6/22/
GOV045-15.pdf.
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2.4
¥0.4
¥0.4
Targeted ROE
Recovery rate
after targeted
ROE
(%)
[1/(2 + 4)]
4
Revenue
Year
Net income
(ROE)
[1–2]
5
0.3
0.3
0.3
108.2
97.6
97.5
discussed below, that offset the
anticipated online transfer and account
maintenance volume declines. The
Reserve Banks also project that 2017
expenses will increase by $3.2 million,
compared with 2016 expenses,
reflecting higher expected operating
costs. Higher operating costs in 2017
reflect the amortization of capital
software costs from completed
modernization initiatives as well as the
advancement of new initiatives to
improve resiliency and operational
functionality.
The Reserve Banks will increase the
online agency transfer fee from $0.65 to
$0.77 and increase the offline
origination and receipt surcharge
transfer fee from $66 to $80. The
Reserve Banks also will increase the
monthly agency issues maintenance fee
from $0.65 to $0.77 and will increase
the monthly account maintenance fee
from $48 to $57.50. Moreover, the
Reserve Banks will increase the joint
custody origination surcharge from $44
to $46. Finally, the Reserve Banks will
increase the claims adjustment fees from
$0.75 to $0.80. The Reserve Banks
estimate that the price changes will
result in an 18.0 percent average price
increase for Fedwire Securities
customers.
The primary risks to the Reserve
Banks’ ability to achieve budgeted 2017
cost recovery for these services are
lower-than-expected volume resulting
from the pace of structural changes in
government securities settlement, and
cost overruns from new initiatives to
improve resiliency and operational
functionality.
G. FedLine Access—The Reserve
Banks charge fees for the electronic
connections that depository institutions
use to access priced services and
allocate the costs and revenue
associated with this electronic access to
the various priced services. There are
currently five FedLine channels through
which customers can access the Reserve
Banks’ priced services: FedMail,
FedLine Web, FedLine Advantage,
FedLine Command, and FedLine
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Direct.47 The Reserve Banks package
these channels into nine FedLine
packages, described below, that are
supplemented by a number of premium
(or a la carte) access and accounting
information options. In addition, the
Reserve Banks offer FedComplete
packages, which are bundled offerings
of a FedLine Advantage connection and
a fixed number of FedACH, Fedwire
Funds, and Check 21-enabled services.
Six attended access packages offer
manual access to critical payment and
information services via a web-based
interface. The FedLine Exchange
package provides access to basic
information services via email, while
two FedLine Web packages offer an
email option plus online attended
access to a range of services, including
cash services, FedACH information
services, and check services. Three
FedLine Advantage packages expand
upon the FedLine Web packages and
offer attended access to critical
transactional services: FedACH,
Fedwire Funds, and Fedwire Securities.
Three unattended access packages are
computer-to-computer, IP-based
interfaces. The FedLine Command
package offers an unattended
connection to FedACH, as well as most
accounting information services. The
two remaining options are FedLine
Direct packages, which allow for
unattended connections at one of two
connection speeds to FedACH, Fedwire
Funds, and Fedwire Securities
transactional and information services
and to most accounting information
services.48
For the 2017 FedLine fees, the
Reserve Banks will increase five existing
monthly fees: (1) The FedLine Web Plus
fee from $140 to $160, (2) the FedLine
Direct Premier fee from $6,500 to
$6,700, (3) the FedComplete 200 Plus
fee from $1,300 to $1,350, (4) the
FedComplete 200 Premier fee from
$1,375 to $1,425, and (5) the FedMail
Fax a la carte fee from $70 to $100. As
in previous years, the Reserve Banks
will introduce new fees on legacy
services. In particular, the Reserve
Banks will implement a legacy software
fee to encourage FedLine Direct
customers to migrate to an enhanced
47 FedMail, FedLine Web, FedLine Advantage,
FedLine Command, and FedLine Direct are
registered trademarks of the Federal Reserve Banks.
48 None of the FedLine packages offer an
unattended connection to check services. The
Reserve Banks offer an unattended check product,
Check 21 Large File Delivery, outside of the
FedLine suite that allows a depository institution to
upload and download check image cash letters
automatically via a direct network connection to the
Reserve Banks.
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messaging solution.49 To provide
customers sufficient time to migrate, the
fee will not become effective until the
third quarter of 2017. The fee will be
introduced on July 1, 2017, at $5,000
per month and will increase in steps to
$20,000 per month by the end of 2017.50
In addition, the Reserve Banks will
remove the legacy email service from all
FedLine Web, Advantage, Command,
and Direct packages and introduce a
$20-per-month fee to purchase an a la
carte subscription to this service.
Customers in these packages that
currently use the email service will have
the opportunity to cancel the service to
avoid the a la carte fee.
In addition, the Reserve Banks will
modify the E-Payments Routing
Directory and make several associated
changes to FedLine packages and fees.51
Currently, all FedLine Web, Advantage,
Command, and Direct packages include
two services to download the directory:
manual and automated.52 The Reserve
Banks will introduce a new automated
download service that will allow
subscribers to provide access to the
directory to their customers (that is,
non-financial institutions that require
access to the directory). Access to the
directory will be controlled through the
use of download codes, and financial
institutions will be responsible for
distributing the codes to their respective
customers. Additionally, the Reserve
Banks will include the automated
download service in only plus- and
premier-level FedLine packages.53 Five
download codes will be included in
these packages, and additional codes
will be available to purchase through an
a la carte option (codes will be available
in bundles ranging in price from $75 to
$2,000 per month).
To accommodate the enhancements to
the E-payments Directory, the Reserve
Banks will introduce a new FedLine
Exchange service, along with a new set
49 To avoid the fee, FedLine Direct customers will
need to configure their systems to run a supported
version of the MQ platform. MQ is a critical
messaging component that facilitates the exchange
of information between applications, systems,
services and files.
50 The fee will increase to $10,000 per month on
September 1, 2017, and to $20,000 per month on
November 1, 2017.
51 E-Payments Routing Directory provides basic
routing information for Fedwire Funds, Fedwire
Securities, and FedACH transactions.
52 The manual service allows subscribers to
download the directory in a manual fashion via a
web-based interface. The automated service allows
subscribers to schedule daily, weekly, or monthly
automated (unattended) downloads of the directory.
53 Plus- and premier-level packages are FedLine
Web Plus, FedLine Advantage Plus and Premier,
FedLine Command Plus, and FedLine Direct Plus
and Premier. In addition the new FedLine Exchange
Premier package will have access to the automated
service.
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of associated packages. Currently, the
FedLine Exchange service is an emailbased interface, and there is only one
package available. The new FedLine
Exchange service—which will be a webbased interface (that is, accessible via a
web browser rather than email)—will
allow customers that do not use FedLine
for Federal Reserve Financial Services
to access the E-Payments Routing
Directory.54 The new service will be
available in two packages: A base-level
and premier-level. The base package,
priced at $40 per month, will include
the manual download directory service.
The premier package, priced at $125
month, will include both the manual
and automated download directory
services.55 To ensure continuity of
service, the services available in the
existing FedLine Exchange package will
continue to be available through a new
package, FedMail, as discussed below.
The Reserve banks will introduce a
new FedMail package, priced at $85 per
month, which will include the same
email-based services included in the
existing FedLine Exchange package.56
Subscribers of the existing FedLine
Exchange package will be transitioned
to the new FedMail package and
experience a fee increase of $45.57
The Reserve Banks estimate that the
price changes will result in an 8.1
percent average price increase for
FedLine customers.
II. Analysis of Competitive Effect
All operational and legal changes
considered by the Board that have a
substantial effect on payment system
participants are subject to the
competitive impact analysis described
in the March 1990 policy ‘‘The Federal
Reserve in the Payments System.’’ 58
Under this policy, the Board assesses
whether proposed changes will have a
direct and material adverse effect on the
ability of other service providers to
compete effectively with the Federal
54 Customers that do not use FedLine to access
Federal Reserve Financial Services are generally
small financial institutions that partner with a
payment processor or other third party for
transactional processing.
55 FedLine Exchange customers will need to
request credentials to access the manual directory
download service. These credentials will be billed
via a FedMail-FedLine Exchange Subscriber 5-pack.
The automated download directory service under
the FedLine Exchange Premier package includes
five download codes so a separate subscriber 5-pack
is not required.
56 The addition of the FedMail package and the
FedLine Exchange Premier package will increase
the total number of FedLine packages from nine to
eleven.
57 The $45 increase represents the difference in
price between the new FedMail package ($85) and
the existing FedLine Exchange package ($40).
58 Federal Reserve Regulatory Service (FRRS) 9–
1558.
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Reserve in providing similar services
because of differing legal powers or
constraints or because of a dominant
market position deriving from such legal
differences. If any proposed changes
create such an effect, the Board must
further evaluate the changes to assess
whether the benefits associated with the
changes—such as contributions to
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payment system efficiency, payment
system integrity, or other Board
objectives—can be achieved while
minimizing the adverse effect on
competition.
The 2017 fees, fee structures, and
changes in service will not have a direct
and material adverse effect on the
ability of other service providers to
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compete effectively with the Reserve
Banks in providing similar services. The
changes 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.
III. 2017 Fee Schedules
BILLING CODE 6210–01–P
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FEDACH SERVICE 2017 FEE SCHEDULE
EFFECTIVE JANUARY 3, 2017.
BOLD INDICATES CHANGES FROM 2016 PRICES
Fee
FedACH minimum monthly fee
Originating Depository Financial Institution (ODFI/9
Receiving Depository Financial Institution (RDFI) 6
$50.00
$40.00
Origination (per item or record)
Forward or return items
$0.0032
SameDay Service- forward item 61
$0.0010 surcharge
$0.00 15
Addenda record
FedLine Web®-originated returns and notification of change (NOC) 62
$0.35
63
Facsimile exception returns/NOC ............................................................................ $45.00
Automated NOC ........................................................................................................... $0.20
Volume-based discounts (based on monthly billed origination volume) per item when
origination volume is:
750,001 to 1,500,000 items per month .................................................... $0.0005
discount
more than 1,500,000 items per month ..................................................... $0.0007
discount
Volume-based discounts (based on monthly billed receipt volume) per item when receipt
volume is 64 :
59
Any ODFI incurring less than $50 in forward value and nonvalue item origination fees will
be charged a variable amount to reach the minimum monthly origination fee.
60
Any RDFI not originating forward value and nonvalue items and incurring less than $40 in
receipt fees will be charged a variable amount to reach the minimum monthly receipt fee. Any
RDFI that originates forward value and nonvalue items incurring less than $50 in forward value
and nonvalue item origination fees will only be charged a variable amount to reach the minimum
monthly origination fee.
61
This surcharge is assessed on all forward items that qualify for same-day processing and
settlement and is incremental to the standard origination item fee.
62
The fee includes the item and addenda fees in addition to the conversion fee.
63
The fee includes the item and addenda fees in addition to the conversion fee. Reserve Banks
also assess a $30 fee for every government paper return/NOC they process.
Origination discounts based on monthly volume apply only to those items received by
FedACH receiving points and are available only to Premium Receivers (institutions receiving
volume above a specified threshold through FedACH).
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10,000,001 to 15,000,000 items per month
$0.0002 discount
more than 15,000,000 items per month
discount
$0.0003
Receipt (per item or record)
Forward Item .................................................................................................. $0.0032
Return Item .................................................................................................... $0.007 5
Addenda record ............................................................................................. $0.00 15
Volume-based discounts
Non-Premium Receivers-RDFis receiving less than 90 percent of total network
volume through FedACH per item when volume is:
750,001 to 12,500,000 items per month 65 ............................................ $0.0014 discount
more than 12,500,000 items per month 66 ............................................. $0.0016 discount
Premium Receivers, Level One-RDFis receiving at least 90 percent ofFedACHoriginated volume through FedACH per item when volume is:
750,001 to 1,500,000 items per month65 .............................................. $0.0014 discount
1,500,001 to 2,500,000 items per month66 ........................................... $0.0014 discount
2,500,001 to 12,500,000 items per month66 ......................................... $0.0015 discount
more than 12,500,000 items per month66 ............................................. $0.0017 discount
Premium Receivers, level two-RDFis receiving at least 90 percent of ACH volume
originated through FedACH or EPN per item when volume is
750,001 to 1,500,000 items per month65 .............................................. $0.0014 discount
1,500,001 to 2,500,000 items per month66 ........................................... $0.0014 discount
2,500,001 to 12,500,000 items per month66 ......................................... $0.0016 discount
more than 12,500,000 items per month66 ............................................. $0.0018 discount
FedACH Bundled Service Discount
Monthly Bundled Service Package Discount 67 ............................................ $20.00 discount
Monthly FedACH Risk® Management fees 68
65
This per-item discount is a reduction to the standard receipt fees listed in this fee schedule.
66
Receipt volumes at these levels qualify for the waterfall discount, which includes all
FedACH receipt items.
67
This monthly billing discount is available for any customer that (1) pays the FedACH
minimum monthly fee; (2) purchases a FedLine Web Plus or higher package; and (3) subscribes
to either FedACH RDFI Alert, FedACH Risk Origination Monitoring, or FedPayments Reporter.
Criteria may be set for both the origination monitoring service and the RDFI alert service.
Subscribers with no criteria set up will be assessed the $35 monthly package fee.
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Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
Risk Origination Monitoring Service/RDFI Alert Service package pricing ......................... .
For up to 5 criteria sets .......................................................................................... $35.00
For 6 through 11 criteria sets ................................................................................ $70.00
For 12 through 23 criteria sets ............................................................................ $125.00
For 24 through 47 criteria sets ............................................................................ $150.00
For 48 through 95 criteria sets ............................................................................ $250.00
For 96 through 191 criteria sets .......................................................................... $425.00
For 192 through 383 criteria sets ........................................................................ $675.00
For 384 through 584 criteria sets ........................................................................ $850.00
For more than 585 criteria sets ......................................................................... $1, 100.00
Risk origination monitoring batch (based on total monthly volume)
For 1 through 100,000 batches (per batch) ........................................................... $0.007
For more than 100,000 batches (per batch) ........................................................ $0.0035
Monthly FedPayments Reporter Service
.
69
R ece1ver setup report
FedPayments Reporter Service package pricing includes
Standard reports 70
ACH received entries detail- customer and depository financial institution
ACH volume summary by SEC code report - customer
On Demand Surcharge 71 ........................................................................................... 1.00
Report delivery via FedLine file access solution (monthly fee)
For up to 50 reports ...................................................................................... $40.00
For 51 through 150 reports .......................................................................... $60.00
For 151 through 500 reports ...................................................................... $110.00
For 501 through 1,000 reports ................................................................... $200.00
For 1,001 through 1,500 reports ................................................................ $285.00
For 1,501 through 2,500 reports ................................................................ $460.00
69
The Receiver Setup Report is provided as part of the FedPayments Reporter service and is
free of charge to customers that subscribe to FedLine Web Plus, FedLine Advantage Plus,
FedLine Advantage Premier, FedLine Command Plus, FedLine Direct Plus, or FedLine Direct
Premier. Customers who receive the Receiver Setup Report only are not charged FedPayments
Reporter package fees and are instead only charged FedLine access fees (see Attachment VI:
FedLine Access Solutions).
70
71
The on demand surcharge applies to standard reports (as defined in the previous footnote),
ACH received entries detail reports, and ACH volume summary by SEC code reports.
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Standard reports include Customer Transaction Activity, Death Notification, International
(IAT), Notification of Change, Payment Data Information File, Remittance Advice Detail,
Remittance Advice Summary, Return Item, Return Ratio, Social Security Beneficiary, Originator
Setup Reports, and Report Delivery via FedLine Access Solution.
Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
For 2,501
For 3,501
For 4,501
For 5,501
For 7,001
For 8,501
For more
75075
through 3,500 reports ................................................................ $640.00
through 4,500 reports ................................................................ $820.00
through 5,500 reports ................................................................ $995.00
through 7,000 reports ............................................................. $1,225.00
through 8,500 reports ............................................................. $1,440.00
through 10,000 reports ........................................................... $1,650.00
than 10,000 reports ................................................................. $1,800.00
Premier reports (per report generated) 72
ACH volume summary by SEC code report - depository financial institution
For 1 through 5 reports ............................................................................. $1 0. 00
For 6 through 10 reports ............................................................................. $6.00
For 11 or more reports ................................................................................ $1.00
On Demand Surcharge ................................................................................ $1.00
ACH volume summary by SEC code report- customer
On Demand Surcharge ................................................................................ $1.00
Monthly ACH routing number activity report
For 1 through 5 reports ............................................................................. $10.00
For 6 through 10 reports ............................................................................. $6.00
For 11 or more reports ................................................................................ $1.00
On Demand Surcharge ................................................................................ $1.00
Same Day Originated Batch Report (FedPayments Reporter Subscribers) .... $10.00
Same Day Originated Batch Report (non-FedPayments Reporter Subscribers)$30.00
On-us inclusion
Participation (monthly fee per RTN) .............................................................. $10.00
Per-item ......................................................................................................... $0.0030
Per-addenda ................................................................................................... $0.0015
Report delivery via encrypted email (per email) ......................................................... $0.20
Other fees
Monthly fee (per routing number)
Participation fee 73 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $58.00
SameDay service origination participation fee 74 ................................. $10.00 surcharge
FedACH settlement 75 ............................................................................................ $55.00
72
Premier reports generated on demand are subject to the package/tiered fees plus a surcharge.
73
The Participation fee applies to routing numbers that have received or originated FedACH
transactions. Institutions that receive only U.S. government transactions through the Reserve
Banks or that elect to use a private-sector operator exclusively are not assessed this fee.
74
This surcharge is assessed to any routing number that originates at least one item meeting the
criteria for same-day processing and settlement in a given month and is incremental to the
standard Participation fee.
The FedACH settlement fee is applied to any routing number with activity during a month,
including routing numbers of institutions that elect to use a private-sector operator exclusively
but also have items routed to or from customers that access the ACH network through FedACH.
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Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
FedACH information extract file .................................................................... $150.00
IAT Output File Sort ............................................................................................. $75.00
Automated NOC participation fee 76 ....................................................................... $5.00
Non-electronic input/output fee 77
CD/DVD (CD or DVD) ........................................................................................ $50.00
Paper (file or report) .............................................................................................. $50.00
Fees established by NACHA 78
NACHA Same Day Entry fee (per item) .............................................................. $0.052
NACHA Same Day Entry credit (per item) ............................................. $0.052 (credit)
NACHA Unauthorized Entry fee (per item) ........................................................... $4.50
NACHA Unauthorized Entry credit (per item) .......................................... $4.50 (credit)
NACHA Admin Network fee (monthly fee per RTN) ......................................... $18.00
NACHA Admin Network fee (per entry) ....................................................... $0.000162
FedGlobal ACH Payments 79
Fixed Monthly Fee 80
Monthly origination volume more than 500 items .................................. $185.00
Monthly origination volume between 161 and 500 items...................
$60.00
Monthly origination volume less than 161 items ........................................ $20.00
Per-item Origination Fee for Monthly Volume more than 500 Items (surcharge) 81
Canada service ............................................................................................... $0.50
Mexico service ................................................................................................. $0.55
Panama service ................................................................................................ $0.60
Europe service ................................................................................................. $1.13
Per-item Origination Fee for Monthly Volume between 161 and 500 items
(surcharge) 81
Canada service ............................................................................................... $0.75
This fee does not apply to routing numbers that use the Reserve Banks for only U.S. government
transactions.
76
The notification-of-change fee will be assessed only when automated NOCs are generated.
77
Limited services are offered in contingency situations.
78
The fees listed are collected from the ODFI and credited to NACHA (admin network fees) or
to the RDFI (same-day entry fee and unauthorized entry fee) in accordance with the ACH Rules.
79
The international fees and surcharges vary from country to country because these are
negotiated with each international gateway operator.
The fixed monthly fee is a single monthly fee based on total FedGlobal ACH Payments
origination volume.
81
This per-item surcharge is in addition to the standard domestic origination fees.
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75077
Mexico service ................................................................................................. $0.80
Panama service ................................................................................................ $0.85
Europe service ................................................................................................. $1.38
Per-item Origination Fee for Monthly Volume Less than 160 items (surcharge) 81
Canada service ............................................................................................... $1.00
Mexico service ................................................................................................. $1.05
Panama service ................................................................................................ $1.10
Europe service ................................................................................................ $1.63
Other FedGlobal ACH Payments Fees
Canada service
Return received from Canada 82 ................................................................... $0.99
Item trace at receiving gateway ................................................................... $5.50
Item trace not at receiving gateway ............................................................. $7.00
Mexico service fee
Return received from Mexico 82 ................................................................... $0.91
Foreign currency to foreign currency (F3X) item originated to Mexico 81 .. $0.67
Item trace ................................................................................................... $13.50
Panama service fee
Return received from Panama82 ................................................................... $1.00
NOC ............................................................................................................. $O.n
Item trace ..................................................................................................... $7.00
Europe service fee
F3X item originated to Europe 81 .................................................................. $1.25
Return received from Europe 82 .................................................................... $1.35
Item trace ..................................................................................................... $7.00
82
This per-item surcharge is in addition to the standard domestic receipt fees.
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75078
Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
FEDWIRE FUNDS AND NATIONAL SETTLEMENT SERVICES
EFFECTIVE JANUARY
2017 FEE SCHEDULE
3, 2017.
BOLD INDICATES CHANGES FROM 2016 PRICES.
Fedwire Funds Service
Fee
Monthly Participation Fee ................................................................................................. $95.00
Basic volume-based preincentive transfer fee (originations and receipts)- per transfer for:
the first 14,000 transfers per month ........................................................................ $0.820
additional transfers up to 90,000 per month .......................................................... $0.245
every transfer over 90,000 per month ..................................................................... $0.170
Volume-based transfer fee with the incentive discount (originations and receipts)- per
eligible transfer for: 83
the first 14,000 transfers per month ........................................................................ $0.164
additional transfers up to 90,000 per month .......................................................... $0.049
every transfer over 90,000 per month ..................................................................... $0.034
Surcharge for Off-line Transfers (Originations and Receipts) ................................... $60.00
Surcharge for End-of-Day Transfer Originations 84 ............................................................ $0.26
Monthly FedPayments Manager import/export fee 85
....................................................... $50.00
Surcharge for high-value payments:
> $10 million ................................................................................................................. $0.14
83
The incentive discounts apply to the volume that exceeds 60 percent of a customer's historic
benchmark volume. Historic benchmark volume is based on a customer's average daily activity
over the previous five calendar years. If a customer has fewer than five full calendar years of
previous activity, its historic benchmark volume is based on its daily activity for as many full
calendar years of data as are available. If a customer has less than one year of past activity, then
the customer qualifies automatically for incentive discounts for the year. The applicable
incentive discounts are as follows:
$0.656 for transfers up to 14,000; $0.196 for transfers 14,001 to 90,000; and $0.136 for transfers
over 90,000.
84
This surcharge applies to originators of transfers that are processed by the Reserve Banks
after 5:00p.m. eastern time.
This fee is charged to any Fedwire Funds participant that originates a transfer message via
the FedPayments Manager (FPM) Funds tool and has the import/export processing option setting
active at any point during the month.
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85
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75079
> $100 million ............................................................................................................... $0.36
Surcharge for Payment Notification:
Origination Surcharge 86 ................................................................................................ $0.20
National Settlement Service
Basic
Settlement Entry Fee ..................................................................................................... $1.50
Settlement File Fee ..................................................................................................... $30.00
Surcharge for Off-line File Origination 87 ......................................................................... $45.00
Minimum Monthly Fee (account maintenance) 88 ............................................................. $60.00
Special Settlement Arrangements (fee per day) 89 ........................................................... $150.00
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86
Payment Notification and End-of-Day Origination surcharges apply to each Fedwire funds
transfer message.
87
Offline files will be accepted only on an exception basis when a settlement agent's primary
and backup means of transmitting settlement files are both unavailable.
88
Any customer account with total settlement charges less than $60 during a calendar month
will be assessed a variable amount to reach the minimum monthly account maintenance fee.
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.
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75080
Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
FEDWIRE SECURITIES SERVICE 2017 FEE SCHEDULE
(NON-TREASURY SECURITIES)
EFFECTIVE JANUARY
3, 2017.
BOLD INDICATES CHANGES FROM 2016 PRICES.
Fee
Basic Transfer Fee
Transfer or reversal originated or received ............................................................. $0.77
Surcharge
Offline origination & receipt surcharge ................................................................. $80.00
Monthly Maintenance Fees
Account maintenance (per account) ........................................................................ $57.50
Issues maintained (per issue/per account) ................................................................ $0.77
Claim Adjustment Fee ............................................................................................................ $0.80
GNMA Serial Note Stripping or Reconstitution Fee 90
............................................................ $9.00
Joint Custody Origination Surcharge 91 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $46.00
Delivery of Reports- Hard Copy Reports to On-Line Customers ......................................... $50.00
This service was formerly called the GNMA Serial Note CUSIP Fee.
91
Fedwire Securities Service charges customers the Joint Custody Origination Surcharge for
both Agency and Treasury securities.
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Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
FEDLINE 2017 FEE SCHEDULE
EFFECTIVE JANUARY 3, 2017.
BOLD INDICATES CHANGES FROM 2016 PRICES.
Fee
FedComplete Packages (monthly)
92
FedComplete 100 Plus .......................................................................................................... $775.00
includes FedLine Advantage Plus package
FedLine subscriber 5-pack
FedMail-FedLine Exchange subscriber 5-pack 93
7,500 FedForward transactions
70 FedReturn transactions
14,000 FedReceipt® transactions
35 Fedwire funds origination transfers
3 5 F edwire funds receipt transfers
Fedwire participation fee
1,000 FedACH origination items
FedACH minimum fee
7,500 FedACH receipt items
FedACH receipt minimum fee
10 F edACH web return/NOC
500 FedACH addenda originated
1,000 FedACH addenda received
FedACH account servicing
FedACH settlement
FedComplete 100 Premier ................................................................................................... $850.00
includes FedLine Advantage Premier package
Volumes included in the FedComplete 100 Plus package
(This space is intentionally blank)
92
93
FedComplete customers that use the email service will be charged the FedMail Email ala
carte fee.
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FedComplete packages are all-electronic service options that bundle payment services with
an access solution for one monthly fee.
75082
Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
Fed Complete 200 Plus ................................................................................................... .$1,350.00
includes FedLine Advantage Plus package
FedLine subscriber 5-pack
FedMail-FedLine Exchange subscriber 5-pack 94
25,000 FedForward transactions
225 FedReturn transactions
25,000 FedReceipt transactions
100 Fedwire funds origination transfers
100 F edwire funds receipt transfers
Fedwire participation fee
2,000 FedACH origination items
FedACH minimum fee
25,000 FedACH receipt items
FedACH receipt minimum fee
20 F edACH web return/NOC
750 FedACH addenda originated
1,500 FedACH addenda received
FedACH account servicing
FedACH settlement
Fed Complete 200 Premier ............................................................................................. .$1,425.00
includes FedLine Advantage Premier package
Volumes included in the FedComplete 200 Plus package
FedComplete Excess Volume Surcharge 95
FedForward ..................................................................................................... $0.01/item
FedReturn .................................................................................................... $0.7500/item
Fedwire Funds Origination .......................................................................... $0.7000/item
FedACH Origination ................................................................................... $0.0025/item
94
95
Per-item surcharges are in addition to the standard fees listed in the applicable priced services
fee schedules.
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FedComplete customers that use the email service will be charged the FedMail Email ala
carte fee.
Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
75083
FedComplete package credit incentive 96 ........................................................................ ($1,500.00)
F edComplete credit adjustment ............................................................................................. various
F edComplete debit adjustment .............................................................................................. various
FedLine Customer Access Solutions (monthly/7
FedMail 98 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $85.00
includes FedMail access channel
FedACH Advice and Settlement Information
Fedwire Funds Offline Advices
Check 21 Services
Check 21 Duplicate Notification Service
Check Adjustments
Accounting Statements
Daylight Overdraft Reports
Billing Statement
96
New FedComplete package customers with a new FedLine Advantage connection are eligible
for a one-time $1,500 credit applied to their Federal Reserve service charges. Customers
receiving credit must continue using the FedComplete package for a minimum of six months or
forfeit the $1,500 credit.
97
VPN hardware for FedLine Advantage and FedLine Command is billed directly by the vendor.
A current list of fees can be found at
http :1/www. frb services. org/fil es/ servi cefees/pdf/access/vendor_fees. pdf
FedMail and FedLine Exchange packages do not include user credentials, which are required
to access priced services and certain informational services. Credentials are sold separately in
packs of five via the FedMail-FedLine Exchange Subscriber 5-pack.
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Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
FedLine Exchange98 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $40.00
includes E-Payments Routing Directory (manual download)
FedLine Exchange Premier98 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $125.00
includes FedLine Exchange package
E-Payments Routing Directory (auto download)
FedLine Web 99 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $110.00
includes FedLine Web access channel
Services included in the FedLine Exchange package
Check FedForward, FedReturn and FedReceipt services
Check Adjustments
FedACH Information Services & Derived Returns/NOCs
FedACH Risk Services (includes RDFI Alert and Returns Reporting)
FedCash Services
Service Charge Information
FedLine Web Plus 99 •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $160.00
includes FedLine Web package
FedACH Risk Origination Monitoring Service
FedACH FedPayments Reporter Service
Check Large Dollar Return
Check Fedlmage Services
Account Management Information
Various accounting and inquiry services (ABMS inquiry, IAS/PSR inquiry, lAS
detailed inquiries, notifications and advices, end-of-day accounting file (PDF))
E-Payments Routing Directory (auto download)
FedLine Advantage99 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $380.00
includes: FedLine Advantage access channel
Services included in the FedLine Web package
FedACH transactions
FedLine Web and Advantage packages do not include user credentials, which are required to
access priced services and certain informational services. Credentials are sold separately in packs
of five via the FedLine Subscriber 5-pack.
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75085
Fedwire Funds transactions
Fedwire Securities transactions
National Settlement Service transactions
Check Large Dollar Return
Check Fedlmage Services
Account Management Information with
Intra-Day Download Search File
Various accounting and inquiry services (ABMS inquiry, IAS/PSR inquiry, lAS
detailed inquiries, notifications and advices, end-of-day accounting file (PDF))
FedLine Advantage Plus99 ..................................................................................................... $425.00
includes FedLine Advantage package
FedACH Risk Origination Monitoring Service
FedACH FedPayments Reporter Service
Fedwire Funds FedPayments Manager Import/Export (less than 250 Fedwire
transactions and one routing number per month)
FedTransaction Analyzer® (less than 250 Fedwire transactions and one routing number
per month)
E-Payments Routing Directory (auto download)
FedLine Advantage Premier99 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• $500.00
includes FedLine Advantage Plus package
Secondary VPN device
Fedwire Funds FedPayments Manager Import/Export (more than 250 Fedwire
transactions or more than one routing number in a given month)
FedTransaction Analyzer (more than 250 Fedwire transactions or more than one
routing number per month)
F edLine Command Plus ..................................................................................................... $1,000.00
includes FedLine Command access channel
Services included in the FedLine Advantage Plus package
Two FedLine Command server certificates
Fedwire Statement Services
Fedwire Funds FedPayments Manager Import/Export (more than 250 Fedwire
transactions or more than one routing number in a given month)
Intra-Day File (1-Day CI File)
Statement of Account Spreadsheet File (SASF)
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FedTransaction Analyzer (more than 250 Fedwire transactions or more than one
routing number per month)
75086
Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
Financial Institution Reconcilement Data File (FIRD)
Billing Data Format File (BDFF)
FedLine Direct Plus ........................................................................................................... $3,600.00
includes FedLine Direct access channel
256K Dedicated WAN Connection
Services included in the FedLine Command Plus package
Two FedLine Direct server certificates
Treasury Check Information System (TCIS)
FedLine Direct Premier ................................................................................................... $6, 700.00
includes FedLine Direct Plus package
T1 dedicated WAN connection
Secondary VPN device
Cash Management Services Plus Own Report (No Respondent/Subaccount activity)
Ala carte options (monthly) 100
Electronic Access
FedMail- FedLine Exchange Subscriber 5-pack ........................................................... $15.00
FedLine Subscriber 5-pack (access to Web and Advantage) .............................................. $80.00
Additional FedLine Command Certificate 101 .................................................................... $100.00
Additional FedLine Direct Certificate 102 ........................................................................... $100.00
Additional VPNs- Maintenance Fee 103 ............................................................................... $60.00
Additional dedicated connections
256K
........................................................................................................ $2,500.00
T1
........................................................................................................ $3,200.00
FedLine International Setup (one-time fee) .................................................................... $5,000.00
FedLine Custom Implementation Fee 104 ............................................................................ various
100
These add-on services can be purchased only with a FedLine Customer Access Service
option.
101
Additional FedLine Command Certificates available for FedLine Command and Direct
packages only.
Additional FedLine Direct Certificates available for FedLine Direct packages only.
103
Additional VPNs are available for FedLine Advantage, FedLine Command, and FedLine
Direct packages only.
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75087
FedLine Direct Contingency Solution ............................................................................ $1,000.00
Check 21 Large File Delivery 105 ....................................................................................... various
FedMail Email (for FedLine customers) ......................................................................... $20.00
FedMail Fax ..................................................................................................................... $100.00
VPN Device Modification ................................................................................................. $200.00
VPN Device Missed Activation Appointment. .................................................................. $175.00
VPN Device Expedited Hardware Surcharge .................................................................... $100.00
VPN Device Replacement or Move ................................................................................... $300.00
E-Payments Automated Download (1-5 Add'l Codes) ........................................................ $75
E-Payments Automated Download (6-20 Add'l Codes) .................................................... $150
E-Payments Automated Download (21-50 Add'l Codes) .................................................. $300
E-Payments Automated Download (51-100 Add'l Codes) ................................................ $500
E-Payments Automated Download (101-250 Add'l Codes) ........................................... $1,000
E-Payments Automated Download (>250 Add'l Codes) ................................................ $2,000
Electronic Access Training
Learning Center
Certificate Retrieval Download Tutorial
complimentary
complimentary
Accounting Information Services
Cash Management System (CMS) Plus- Own report- up to six files with: 106
no respondent/sub-account activity ............................................................................. $60.00
less than 10 respondent and/or sub-accounts ............................................................ $125.00
10-50 respondent and/or sub-accounts ...................................................................... $250.00
51-100 respondents and/or sub-accounts .................................................................. $500.00
101-500 respondents and/or sub-accounts ................................................................ $750.00
>500 respondents and/or sub-accounts .................................................................. $1,000.00
End-of-Day Financial Institution Reconcilement Data File 107 .......................................... $150.00
104
The FedLine Custom Implementation Fee is $2,500 or $5,000 based on the complexity of the
setup.
105
The fee ranges from $1,400 to $20,725 depending on the size, speed, and location ofthe
connection.
106
Cash Management Service options are limited to plus and premier packages.
The End of Day Reconcilement File option is available for FedLine Web Plus, FedLine
Advantage Plus, and Premier packages. It is available for no extra fee in FedLine Command
Plus and Direct packages.
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107
75088
By order of the Board of Governors of the
Federal Reserve System, October 25, 2016.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016–26068 Filed 10–27–16; 8:45 am]
BILLING CODE 6210–01–C
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
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[CMS–1667–FN]
Medicare Program; Approval of
Request for an Exception to the
Prohibition on Expansion of Facility
Capacity Under the Hospital
Ownership and Rural Provider
Exceptions to the Physician SelfReferral Prohibition
Centers for Medicare &
Medicaid Services (CMS), HHS.
AGENCY:
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ACTION:
Final notice.
This final notice announces
our decision to approve the request of
Deaconess Women’s Hospital of
Southern Indiana doing business as (d/
b/a) The Women’s Hospital (The
Women’s Hospital) for an exception to
the prohibition on expansion of facility
capacity.
DATES: Effective Date: This notice is
effective on October 28, 2016.
FOR FURTHER INFORMATION CONTACT:
POH-ExceptionRequests@
cms.hhs.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Background
Section 1877 of the Social Security
Act (the Act), also known as the
physician self-referral law—(1) prohibits
a physician from making referrals for
certain ‘‘designated health services’’
(DHS) payable by Medicare to an entity
with which he or she (or an immediate
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family member) has a financial
relationship (ownership or
compensation), unless the requirements
of an applicable exception are satisfied;
and (2) prohibits the entity from filing
claims with Medicare (or billing another
individual, entity, or third party payer)
for those DHS furnished as a result of a
prohibited referral.
Section 1877(d)(2) of the Act provides
an exception, known as the rural
provider exception, for physician
ownership or investment interests in
rural providers. In order for an entity to
qualify for the rural provider exception,
the DHS must be furnished in a rural
area (as defined in section 1886(d)(2)(D)
of the Act) and substantially all the DHS
furnished by the entity must be
furnished to individuals residing in a
rural area.
Section 1877(d)(3) of the Act provides
an exception, known as the hospital
ownership exception, for physician
ownership or investment interests held
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Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
]]>Agencies
[Federal Register Volume 81, Number 209 (Friday, October 28, 2016)]
[Notices]
[Pages 75058-75088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26068]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
[Docket No. OP-1552]
Federal Reserve Bank Services
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: The Board of Governors of the Federal Reserve System (Board)
has approved the private sector adjustment factor (PSAF) for 2017 of
$16.6 million and the 2017 fee schedules for Federal Reserve priced
services and electronic access. These actions were taken in accordance
with the Monetary Control Act of 1980, which requires that, over the
long run, fees for Federal Reserve priced services be established on
the basis of all direct and indirect costs, including the PSAF.
DATES: The new fee schedules become effective January 3, 2017.
FOR FURTHER INFORMATION CONTACT: For questions regarding the fee
schedules: Susan V. Foley, Senior Associate Director, (202) 452-3596;
Linda Healey, Senior Financial Services Analyst, (202) 452-5274,
Division of Reserve Bank Operations and Payment Systems. For questions
regarding the PSAF: Gregory L. Evans, Deputy Associate Director, (202)
452-3945; Lawrence Mize, Deputy Associate Director, (202) 452-5232; Max
Sinthorntham, Senior Financial Analyst, (202) 452-2864, 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 2017 fee schedules for the check service are
available from the Board, the Federal Reserve Banks, or the Reserve
Banks' financial services Web site at www.frbservices.org.
SUPPLEMENTARY INFORMATION:
I. Private Sector Adjustment Factor, Priced Services Cost Recovery, and
Overview of 2017 Price Changes
A. Overview--Each year, as required by the Monetary Control Act of
1980, the Reserve Banks set fees for priced services provided to
depository institutions. These fees are set to recover, over the long
run, all direct and indirect costs and imputed costs, including
financing costs, taxes, and certain other expenses, as well as the
return on equity (profit) that would have been earned if a private
business firm provided the services. The imputed costs and imputed
profit are collectively referred to as the PSAF. From 2006 through
2015, the Reserve Banks recovered 102.6 percent of their total expenses
(including imputed costs) and targeted after-tax profits or return on
equity (ROE) for providing priced services.\1\
---------------------------------------------------------------------------
\1\ The 10-year recovery rate is based on the pro forma income
statements for Federal Reserve priced services published in the
Board's Annual Report. Effective December 31, 2006, the Reserve
Banks implemented the Financial Accounting Standard Board's (FASB)
Statement of Financial Accounting Standards (SFAS) No. 158,
Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans (codified in FASB Accounting Standards
Codification (ASC) Topic 715 (ASC 715), Compesation-Retirement
Benefits), which resulted in recognizing a cumulative reduction in
equity related to the priced services' benefit plans. Including this
cumulative reduction in equity from 2006 to 2015 results in cost
recovery of 92.8 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 2015 actual, 2016 estimated, and 2017 budgeted
cost-recovery rates for all priced services. Cost recovery is estimated
to be 103.6 percent in 2016 and budgeted to be 100.0 percent in 2017.
Table 1--Aggregate Priced Services Pro Forma Cost and Revenue Performance \a\
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
5 \e\ Recovery
2 \c\ Total 3 Net income 4 \d\ Targeted rate after
Year 1 \b\ Revenue expense (ROE) ROE targeted ROE
(%)
[1-2] [1/(2+4)]
----------------------------------------------------------------------------------------------------------------
2015 (actual)................... 429.1 397.8 31.3 5.6 106.4
2016 (estimate)................. 432.5 413.3 19.1 4.1 103.6
2017 (budget)................... 439.4 434.8 4.6 4.6 100.0
----------------------------------------------------------------------------------------------------------------
\a\ Calculations in this table and subsequent pro forma cost and revenue tables may be affected by rounding.
\b\ Revenue includes imputed income on investments when equity is imputed at a level that meets minimum capital
requirements and, when combined with liabilities, exceeds total assets.
\c\ The calculation of total expense includes operating, imputed, and other expenses. Imputed and other expenses
include taxes, 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.
[[Page 75059]]
\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 provides an overview of cost-recovery budgets, estimates,
and performance for the 10-year period from 2006 to 2015, 2015 actual,
2016 budget, 2016 estimate, and 2017 budget by priced service.
Table 2--Priced Services Cost Recovery
[Percent]
----------------------------------------------------------------------------------------------------------------
2016 Budget 2017 Budget
Priced service 2006-2015 2015 Actual \a\ 2016 Estimate \b\
----------------------------------------------------------------------------------------------------------------
All services.................... 102.6 106.4 101.4 103.6 100.0
Check........................... 103.6 113.0 105.7 109.7 104.5
FedACH.......................... 99.5 100.7 99.5 98.8 95.5
Fedwire Funds and NSS........... 101.8 103.9 99.4 103.2 101.0
Fedwire Securities.............. 102.7 108.2 97.5 97.6 97.5
----------------------------------------------------------------------------------------------------------------
\a\ The 2016 budget figures reflect the final budgets as approved by the Board in December 2015.
\b\ The 2017 budget figures reflect preliminary budget information from the Reserve Bank. The Reserve Banks will
submit final budget data to the Board in November 2016, for Board consideration in December 2016.
1. 2016 Estimated Performance--The Reserve Banks estimate that they
will recover 103.6 percent of the costs of providing priced services in
2016, including total expense and targeted ROE, compared with a 2016
budgeted recovery rate of 101.4 percent, as shown in table 2. Overall,
the Reserve Banks estimate that they will fully recover actual and
imputed costs and earn net income of $19.1 million, compared with the
targeted ROE of $4.1 million. The Reserve Banks estimate that the check
service and the Fedwire[supreg] Funds and National Settlement Service
will achieve full cost recovery; however, the Reserve Banks estimate
that the FedACH[supreg] Service and the Fedwire Securities Service will
not achieve full cost recovery because of investment costs associated
with multiyear technology initiatives to modernize their processing
platforms.\2\ These investments are expected to enhance efficiency, the
overall quality of operations, and the Reserve Banks' ability to offer
additional services to depository institutions. Greater-than-expected
check volume processed by the Reserve Banks has been the single most
significant factor influencing priced services cost recovery.
---------------------------------------------------------------------------
\2\ The Reserve Banks have been engaged in a multiyear
technology initiative to modernize the FedACH processing platform by
migrating the service from a mainframe system to a distributed
computing environment. In 2016, the Reserve Banks chose a
commercially available option as their processing solution to
modernize the FedACH platform.
The Reserve Banks completed a multiyear technology initiative to
modernize the processing platform for the Fedwire Securities
Services in 2015. The capitalized software costs of this initiative
will be amortized until October 2020 and thus remain a primary
factor in the cost recovery calculation for these services in 2016.
---------------------------------------------------------------------------
2. 2017 Private-Sector Adjustment Factor--The 2017 PSAF for Reserve
Bank priced services is $16.6 million. This amount represents an
increase of $3.5 million from the 2016 PSAF of $13.1 million. This
increase is primarily the result of an increase in the total cost of
capital, which includes cost of debt and targeted return on equity.
3. 2017 Projected Performance--The Reserve Banks project a priced
services cost-recovery rate of 100.0 percent in 2017, with both net
income and targeted ROE of $4.6 million. The Reserve Banks project that
the price changes will result in a 3.2 percent average price increase
for customers. The Reserve Banks project that the check service and the
Fedwire Funds and National Settlement Service will fully recover their
costs; however, the Reserve Banks project that the FedACH Service and
the Fedwire Securities Service will not achieve full cost recovery.
Although FedACH is not budgeted to fully recover its costs in 2017, the
Reserve Banks are expected to fully recover FedACH costs following
finalization of the FedACH technology modernization project and over
the long run. In addition, the Board believes the Reserve Banks' 2017
FedACH fee increases are consistent with a multi-year strategy to
minimize pricing volatility and provide long-term price stability for
customers while undertaking the ongoing technology upgrade that will
result in FedACH incurring higher expenses over the next few years.
Although the Fedwire Securities Service is not budgeted to fully
recover its costs in 2017, the Board believes the Reserve Banks are
expected to fully recover Fedwire Securities Service costs over the
long run following a few years of under recovery. As a result of an
expected decrease in volume as well as the advancement of new
initiatives to improve resiliency and operational functionality, the
Reserve Banks plan to increase fees gradually over a multi-year period
to avoid the dramatic impact of a sharp one-year increase.
The primary risks to the Reserve Banks' ability to achieve their
targeted cost-recovery rates are unanticipated volume and revenue
reductions and the potential for cost overruns with the technology
modernization initiatives. In light of these risks, the Reserve Banks
will continue refining their business and operational strategies to
manage operating costs, to increase product revenue, and to capitalize
on efficiencies gained from technology initiatives.
4. 2017 Pricing--The following summarizes the Reserve Banks' fee
schedules for priced services in 2017:
Check
The Reserve Banks announced in July 2016, restructured
FedForward[supreg], FedReturn[supreg], and FedReceipt[supreg] fee
schedules to reflect today's electronic check-processing environment
and announced in October 2016 a minor additional modification.\3\ These
previously announced fees, discussed in attachment II, will be
effective in January 2017, consistent with the fee schedules for other
priced services. The Reserve Banks announced the restructured fee
schedules earlier in the year to provide customers with sufficient
notice.
---------------------------------------------------------------------------
\3\ For the July announcement, see https://www.frbservices.org/files/servicefees/pdf/071116_2017_check_pricing_customer_letter.pdf.
For the October announcement, see https://frbservices.org/files/communications/pdf/check/100316-check-modification-announcement.pdf.
---------------------------------------------------------------------------
FedACH
The Reserve Banks will increase the minimum monthly fee
for FedACH origination from $45 to $50 and the minimum monthly fee for
FedACH receipt from $35 to $40.
The Reserve Banks will increase the FedACH Account
Servicing fee from
[[Page 75060]]
$45 to $58. The Reserve Banks will also change the name of the FedACH
Account Servicing fee to the FedACH Participation fee.
The Reserve Banks will eliminate the on-us receipt credit
of $0.0032 per item.
The Reserve Banks will increase the FedACH Information
Extract File fee from $100 to $150 per file.
The Reserve Banks will increase the FedPayments Reporter
fee approximately 10 percent rounded to the nearest $5 for each level
of the tiered package pricing. The Reserve Banks also will introduce a
new top tier, with a $1,800 monthly fee, for a package that includes
more than 10,000 reports.
The Reserve Banks will introduce a fixed monthly fee and a
volume-based tiered pricing structure for the FedGlobal ACH service.
The tiered pricing structure will include per-item surcharges that are
in addition to the standard FedACH origination fee of $0.0032 and vary
according to the transaction's destination, as seen in table 9. The top
tier will cover monthly origination volume of more than 500 items and
include a $185 fixed monthly fee and a per-item surcharge that is $0.12
lower than current per-item fees. The next tier will cover monthly
origination volume between 161 and 500 items and include a $60 fixed
monthly fee and a per-item surcharge that is $0.13 higher than current
per-item fees. The bottom tier will cover monthly origination volume
between 0 and 160 items and include a $20 fixed monthly fee and a per-
item surcharge that is $0.38 higher than current per-item fees.
Fedwire Funds
The Reserve Banks will increase the Tier 1 per-item
preincentive fee from $0.790 to $0.820 per transaction, increase the
Tier 2 per-item preincentive fee from $0.240 to $0.245, and increase
the Tier 3 per-item preincentive fee from $0.155 to $0.170 per
transaction.\4\
---------------------------------------------------------------------------
\4\ The per-item preincentive fee is the fee that the Reserve
Banks charge for transfers that do not qualify for incentive
discounts. The Tier 1 per-item preincentive fee applies to the first
14,000 transfers, the Tier 2 per-item preincentive fee applies to
the next 76,000 transfers, and the Tier 3 per-item preincentive fee
applies to any additional transfers. The Reserve Banks apply an 80
percent incentive discount to transfers over 60 percent of a
customer's historic benchmark volume.
---------------------------------------------------------------------------
The Reserve Banks will increase the surcharge for offline
transactions from $55 to $60.
National Settlement Services
The Reserve Banks will keep prices at existing levels for
the priced National Settlement Services.
Fedwire Securities
The Reserve Banks will increase the online agency transfer
fee from $0.65 to $0.77.
The Reserve Banks will increase the offline origination
and receipt surcharge transfer fee from $66 to $80.
The Reserve Banks will increase the monthly agency issues
maintenance fee from $0.65 to $0.77.
The Reserve Banks will increase the monthly account
maintenance fee from $48.00 to $57.50.
The Reserve Banks will increase the joint custody
origination surcharge from $44 to $46.
The Reserve Banks will increase the claims adjustment fees
from $0.75 to $0.80.
FedLine[supreg] Access Solutions
The Reserve Banks will increase five existing monthly
fees: (1) The FedLine Web[supreg] Plus fee from $140 to $160, (2) the
FedLine Direct[supreg] Premier fee from $6,500 to $6,700, (3) the
FedComplete[supreg] 200 Plus fee from $1,300 to $1,350, (4) the
FedComplete 200 Premier fee from $1,375 to $1,425, and (5) the
FedMail[supreg] Fax a la carte fee from $70 to $100.
The Reserve Banks will implement a legacy software fee to
encourage FedLine Direct customers to migrate to a new messaging
solution. The fee will be introduced in July 2017 at $5,000 per month
and will increase in steps to $20,000 per month by the end of 2017.
The Reserve Banks will remove the legacy email service
from all FedLine Web, Advantage[supreg], Command[supreg], and Direct
packages and introduce a $20-per-month fee to purchase an a la carte
subscription to this service.
The Reserve Banks will modify the E-Payments Routing
Directory and make associated changes to FedLine packages and fees. A
new automated download directory service will be introduced and
available only to subscribers of plus- and premier-level FedLine
packages. A la carte fees for additional directory download codes,
ranging from $75 to $2,000 per month, will also be introduced. In
addition, the new lineup of FedLine Exchange packages, discussed below,
will allow customers that do not use FedLine for Federal Reserve
Financial Services to access the directory.
The Reserve Banks will introduce a new FedLine
Exchange[supreg] service, along with two new associated packages: A
base-level and premier-level. The base package will be priced at $40
per month and include the manual download directory service. The
premier package will be priced at $125 per month and include both the
manual and automated download directory services.
The Reserve Banks will introduce a new FedMail package,
priced at $85 per month, which will include the same services as those
included in the existing FedLine Exchange package to ensure continuity
of this service. All existing FedLine Exchange subscribers will be
transitioned to the new FedMail package and experience a fee increase
of $45.
5. 2017 Price Index--Figure 1 compares indexes of fees for the
Reserve Banks' priced services with the GDP price index.\5\ The price
index for Reserve Bank priced services is projected to decrease less
than 1 percent in 2017 from the 2016 level. The price index for Check
21 services is projected to decrease approximately 3 percent. The price
index for the FedACH Service is projected to increase nearly 1 percent.
The price index for the Fedwire Funds and National Settlement Services
is projected to increase approximately 2 percent. The price index for
the Fedwire Securities Services is projected to increase nearly 1
percent. For the period 2007 to 2017, the price index for total priced
services is expected to decrease approximately 19 percent.
---------------------------------------------------------------------------
\5\ For the period 2007 to 2015, the GDP price index increased
13 percent.
---------------------------------------------------------------------------
[[Page 75061]]
[GRAPHIC] [TIFF OMITTED] TN28OC16.038
B. Private Sector Adjustment Factor--The imputed debt financing
costs, targeted ROE, and effective tax rate are based on a U.S.
publicly traded firm market model.\6\ The method for calculating the
financing costs in the PSAF requires determining the appropriate
imputed levels of debt and equity and then applying the applicable
financing rates. In this process, a pro forma balance sheet using
estimated assets and liabilities associated with the Reserve Banks'
priced services is developed, and the remaining elements that would
exist are imputed as if these priced services were provided by a
private business firm. The same generally accepted accounting
principles that apply to commercial-entity financial statements apply
to the relevant elements in the priced services pro forma financial
statements.
---------------------------------------------------------------------------
\6\ Data for U.S. publicly traded firms is from the Standard and
Poor's Compustat[supreg] database. This database contains
information on more than 6,000 U.S. publicly traded firms, which
approximates the entirety of the U.S. market.
---------------------------------------------------------------------------
The portion of Federal Reserve assets that will be used to provide
priced services during the coming year is determined using information
about actual assets and projected disposals and acquisitions. The
priced portion of these assets is determined based on the allocation of
depreciation and amortization expenses of each asset class. The priced
portion of actual Federal Reserve liabilities consists of
postemployment and postretirement benefits, accounts payable, and other
liabilities. The priced portion of the actual net pension asset or
liability is also included on the balance sheet.\7\
---------------------------------------------------------------------------
\7\ The pension assets are netted with the pension liabilities
and reported as a net asset or net liability as required by ASC 715
Compensation--Retirement Benefits.
---------------------------------------------------------------------------
The equity financing rate is the targeted ROE produced by the
capital asset pricing model (CAPM). In the CAPM, the required rate of
return on a firm's equity is equal to the return on a risk-free asset
plus a market risk premium. The risk-free rate is based on the three-
month Treasury bill; the beta is assumed to be equal to 1.0, which
approximates the risk of the market as a whole; and the market risk
premium is based on the monthly returns in excess of the risk-free rate
over the most recent 40 years. The resulting ROE reflects the return a
shareholder would expect when investing 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 explicitly
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
performance results are greater or less than the targeted ROE, income
taxes are adjusted using the effective tax rate.
Capital structure. The capital structure is imputed based on the
imputed funding need (assets less
[[Page 75062]]
liabilities), subject to minimum equity constraints. Short-term debt is
imputed to fund the imputed short-term funding need. Long-term debt and
equity are imputed to meet the priced services long-term funding need
at a ratio based on the capital structure of the U.S. publicly traded
firm market. The level of equity must meet the minimum equity
constraints, which follow the FDIC requirements for a well-capitalized
institution. The priced services must maintain equity of at least 5
percent of total assets and 10 percent of risk-weighted assets.\8\ Any
equity imputed that exceeds the amount needed to fund the priced
services' assets and meet the minimum equity constraints is offset by a
reduction in imputed long-term debt. When imputed equity is larger than
what can be offset by imputed debt, the excess is imputed as
investments in Treasury securities; income imputed on these investments
reduces the PSAF.
---------------------------------------------------------------------------
\8\ The FDIC rule, which was adopted as final on April 14, 2014,
requires that well-capitalized institutions meet or exceed the
following standards: (1) Total capital to risk-weighted assets ratio
of at least 10 percent, (2) tier 1 capital to risk-weighted assets
ratio of at least 8 percent, (3) common equity tier 1 capital to
risk-weighted assets ratio of at least 6.5 percent, and (4) a
leverage ratio (tier 1 capital to total assets) of at least 5
percent. Because all of the Federal Reserve priced services' equity
on the pro forma balance sheet qualifies as tier 1 capital, only
requirements 1 and 4 are binding. The FDIC rule can be located at
https://www.fdic.gov/news/board/2014/2014-04-08_notice_dis_c_fr.pdf.
---------------------------------------------------------------------------
Application of the Payment System Risk (PSR) Policy to the Fedwire
Services. The Board's PSR policy reflects the new international
standards for financial market infrastructures (FMIs) developed by the
Committee on Payment and Settlement Systems and the Technical Committee
of the International Organization of Securities Commissions in the
Principles for Financial Market Infrastructures. The revised policy
retains the expectation that the Fedwire Services meet or exceed the
applicable risk-management standards. Principle 15 states that an FMI
should identify, monitor, and manage general business risk and hold
sufficient liquid net assets funded by equity to cover potential
general business losses so that it can continue operations and services
as a going concern if those losses materialize. Further, liquid net
assets should at all times be sufficient to ensure a recovery or
orderly wind-down of critical operations and services. The Fedwire
Services do not face the risk that a business shock would cause the
service to wind down in a disorderly manner and disrupt the stability
of the financial system. In order to foster competition with private-
sector FMIs, however, the Reserve Banks' priced services will hold six
months of the Fedwire Funds Service's current operating expenses as
liquid financial assets and equity on the pro forma balance sheet.\9\
Current operating expenses are defined as normal business operating
expenses on the income statement, less depreciation, amortization,
taxes, and interest on debt. The Fedwire Funds Service's six months of
current operating expenses are computed based on its preliminary 2017
budget at $53.9 million. In 2017, $14.1 million of equity was imputed
to meet the FDIC capital requirements. No additional imputed equity was
necessary to meet the PSR policy requirement.
---------------------------------------------------------------------------
\9\ This requirement does not apply to the Fedwire Securities
Service. There are no competitors to the Fedwire Securities Service
that would face such a requirement, and imposing such a requirement
when pricing the securities services could artificially increase the
cost of these services.
---------------------------------------------------------------------------
Effective tax rate. Like the imputed capital structure, the
effective tax rate is calculated based on data from U.S. publicly
traded firms. The tax rate is the mean of the weighted average rates of
the U.S. publicly traded firm market over the past 5 years.
Debt and equity financing. The imputed short- and long-term debt
financing rates are derived from the nonfinancial commercial paper
rates from the Federal Reserve Board's H.15 Selected Interest Rates
release (AA and A2/P2) and the annual Merrill Lynch Corporate & High
Yield Index rate, respectively. The rates for debt and equity financing
are applied to the priced services estimated imputed short-term debt,
long-term debt, and equity needed to finance short- and long-term
assets and meet equity requirements.
The increase in the 2017 PSAF to $16.6 million from $13.1 million
in 2016 is primarily attributable to a $2.0 million increase in the
cost of debt and a $1.0 million increase in the return on equity offset
by a $0.3 million decrease in the incremental return on imputed equity
necessary for PSR policy compliance, all three of which were driven
primarily by increased imputed funding needs arising from higher retail
float asset balances.
Projected 2017 Federal Reserve priced-services assets, reflected in
table 3, have increased $143.1 million from 2016. This increase is
primarily due to a $234.0 million increase in the balance of imputed
investments in federal funds and a net $42.8 million increase in long-
term assets, inclusive of pension, Bank premises, furniture and
equipment, and leasehold improvements and long-term prepayments. The
increase was partially offset by an $80.0 million decrease in items in
process of collection and a $55.8 million decrease in imputed
investments in Treasury securities. The significant increase in the
imputed investments in federal funds balance is related to a reduction
in debit float due to new deposit deadlines associated with the
Endpoint-Culled ICL deposit option deadlines implemented in July 2016,
which are intended to reduce float and items in process of collection.
These balances had increased significantly as a result of the PSR
policy implementation in 2015. The Endpoint-Culled ICL deposit option
defers the portion of deposits the Federal Reserve is unable to present
after a specific deadline during the processing cycle to limit
instances where same-day credit is offered under the PSR policy for
items that cannot be collected same day. The resulting balance of 2017
imputed investments in federal funds was sufficient to comply with the
PSR policy expectations for Fedwire Funds, and no additional costs were
incurred. As shown in table 3, imputed equity for 2017 is $58.6
million, an increase of $4.8 million from the equity imputed for 2016.
In accordance with ASC 715, this amount includes an accumulated other
comprehensive loss of $635.1 million.
Table 4 reflects the portion of short- and long-term assets that
must be financed with actual or imputed liabilities and equity. Debt
and equity imputed to fund the 2017 priced services assets within the
observed market leverage ratio produced an equity level that did not
meet the FDIC minimum equity requirements. As a result, additional
equity was imputed to meet the FDIC requirements, and imputed long-term
debt was reduced. The ratio of capital to risk-weighted assets meets
the required 10 percent of risk-weighted assets, and equity exceeds 5
percent of total assets (table 6). In 2017, long-term debt and equity
was imputed to meet the asset funding requirements and reflects the
leverage ratio observed in the market; additional equity of $14.1
million was required (table 5) to meet the market leverage ratio.
Table 5 shows the derivation of the 2017 and 2016 PSAF. Financing
costs for 2017 are $2.7 million higher than in 2016. In addition to the
increase in the levels of debt and equity mentioned above, the cost of
equity increased in 2017 to 41.6 percent from 41.5 percent in 2016. The
increased equity balance and the slightly higher cost of equity result
in a pretax ROE that is $1.0 million higher than the 2016 pretax ROE.
Imputed sales taxes increased to
[[Page 75063]]
$3.2 million in 2017 from $2.8 million in 2016. The priced services
portion of the Board's expenses increased $0.4 million to $5.4 million
in 2017. The effective income tax rate used in 2017 increased to 22.7
percent from 21.6 percent in 2016.
---------------------------------------------------------------------------
\10\ Credit float, which represents the difference between items
in process of collection and deferred credit items, occurs when the
Reserve Banks debit the paying bank for transactions prior to
providing credit to the depositing bank. Float is directly estimated
at the service level.
\11\ Consistent with the Board's PSR policy, the Reserve Banks;
priced services will hold six months of the Fedwire Funds Service's
current operating expenses as liquid net financial assets and equity
on the pro forma balance sheet. Six months of the Fedwire Funds
Service's projected current operating expenses is $53.9 million. In
2017, $58.6 million of equity was imputed to meet the regulatory
capital requirements.
\12\ Includes the allocation of Board of Governors assets to
priced services of $1.2 million for 2017 and $1.3 million for 2016.
\13\ Includes the allocation of Board of Governors liabilities
to priced services of $0.6 million for 2017 and 2016.
\14\ Includes an accumulated other comprehensive loss of $635.1
million for 2017 and $666.1 million for 2016, 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. See table 5 for
calculation of required imputed equity amount.
Table 3--Comparison of Pro Forma Balance Sheets for Budgeted Federal Reserve Priced Services
[Millions of dollars--projected average for year]
----------------------------------------------------------------------------------------------------------------
2017 2016 Change
----------------------------------------------------------------------------------------------------------------
Short-term assets:
Receivables................................................. $36.6 $35.6 $1.1
Materials and supplies...................................... 0.6 0.5 0.1
Prepaid expenses............................................ 11.2 10.2 1.0
Items in process of collection \10\......................... 241.0 321.0 (80.0)
-----------------------------------------------
Total short-term assets................................. 289.4 367.2 (77.9)
Imputed investments: \11\
Imputed investment in Treasury Securities................... .............. 55.8 (55.8)
Imputed investment in Fed Funds............................. 245.0 11.0 234.0
-----------------------------------------------
Total imputed investments............................... 245.0 66.8 178.2
Long-term assets:
Premises \12\............................................... 128.7 111.0 17.7
Furniture and equipment..................................... 39.0 38.5 0.5
Leasehold improvements and long-term prepayments............ 104.8 89.5 15.3
Pension asset............................................... 10.9 .............. 10.9
Deferred tax asset.......................................... 186.1 187.9 (1.8)
-----------------------------------------------
Total long-term assets.................................. 469.6 426.8 42.8
-----------------------------------------------
Total assets........................................ 1,003.9 860.9 143.1
===============================================
Short-term liabilities:
Deferred credit items....................................... 486.0 332.0 154.0
Short-term debt............................................. 18.1 19.0 (0.9)
Short-term payables......................................... 30.2 27.2 3.0
-----------------------------------------------
Total short-term liabilities............................ 534.4 387.2 156.1
Long-term liabilities:
Pension liability........................................... .............. 17.6 (17.6)
Long-term debt.............................................. 48.4 0.0 48.4
Postemployment/postretirement benefits and net pension 362.5 411.3 48.7
liabilities \13\...........................................
-----------------------------------------------
Total liabilities................................... 945.3 807.1 138.3
Equity \14\..................................................... 58.6 53.8 4.8
-----------------------------------------------
Total liabilities and equity................................ 1,003.9 860.9 143.1
----------------------------------------------------------------------------------------------------------------
Table 4--Imputed Funding for Priced-Services Assets
[Millions of dollars]
------------------------------------------------------------------------
2017 2016
------------------------------------------------------------------------
A. Short-term asset financing:
Short-term assets to be financed:
Receivables..................... $36.6 $35.6
Materials and supplies.......... 0.6 0.5
Prepaid expenses................ 11.2 10.2
-------------------------------
Total short-term assets to be 48.4 46.2
financed...........................
Short-term payables............. 30.2 27.2
Net short-term assets to be financed 18.1 19.0
Imputed short-term debt financing 18.1 19.0
\15\...............................
B. Long-term asset financing:
Long-term assets to be financed: ..............
Premises........................ 128.7 111.0
[[Page 75064]]
Furniture and equipment......... 39.0 38.5
Leasehold improvements and long- 104.8 89.5
term prepayments...............
Pension asset................... 10.9 ..............
Deferred tax asset.............. 186.1 187.9
-------------------------------
Total long-term assets to be 469.6 426.8
financed...........................
Pension liability............... .............. 17.6
Postemployment/postretirement 362.5 411.3
benefits and net pension
liabilities....................
Net long-term assets to be 107.0 (2.0)
financed.......................
Imputed long-term debt \15\..... 48.4 ..............
Imputed equity \15\............. 58.6 53.8
-------------------------------
Total long-term financing... 107.0 53.8
------------------------------------------------------------------------
---------------------------------------------------------------------------
\15\ See table 5 for calculation.
\16\ If minimum equity constraints are not met after imputing
equity based on the capital structure observed in the market,
additional equity is imputed to meet these constraints. The long-
term funding need was met by imputing long-term debt and equity
based on the capital structure observed in the market (see tables 4
and 6). In 2017, the amount of imputed equity exceeded the minimum
equity requirements for risk-weighted assets.
\17\ Equity adjustment offsets are due to a shift of long-term
debt funding to equity in order to meet FDIC capital requirements
for well-capitalized institutions.
\18\ Additional equity in excess of that needed to fund priced
services assets is offset by an asset balance of imputed investments
in treasury securities.
\19\ Imputed short-term debt and long-term debt are computed at
table 4.
\20\ The 2017 ROE is equal to a risk-free rate plus a risk
premium (beta * market risk premium). The 2017 after-tax CAPM ROE is
calculated as 0.30% + (1.0 * 7.59%) = 7.89%. Using a tax rate of
22.7%, the after-tax ROE is converted into a pretax ROE, which
results in a pretax ROE of (7.89%/(1-22.7%)) = 10.21%. Calculations
may be affected by rounding.
Table 5--Derivation of the 2017 and 2016 PSAF
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
2017 2016
---------------------------------------------------------------------------
Debt Equity Debt Equity
----------------------------------------------------------------------------------------------------------------
A. Imputed long-term debt and
equity:
Net long-term assets to finance. $107.0 $107.0 $(2.0) $(2.0)
Capital structure observed in 58.4% 41.6% 58.5% 41.5%
market.........................
---------------------------------------------------------------------------
Pre-adjusted long-term debt and $62.5 $44.5 $(1.2) $(0.8)
equity.........................
Equity adjustments: \16\
Equity to meet capital ................. 58.6 ................. 51.1
requirements...............
Adjustment to debt and (14.1) 14.1 1.2 (1.2)
equity funding given
capital requirements \17\..
Adjusted equity balance..... -- 58.6 -- (2.0)
Equity to meet capital -- -- -- 53.1
requirements \18\..........
---------------------------------------------------------------------------
Total imputed long-term $48.4 $58.6 -- $51.1
debt and equity........
B. Cost of capital:
Elements of capital costs:
Short-term debt \19\........ $18.1 x 0.6% = $0.1 $19.0 x 0.3% = $0.1
Long-term debt \19\......... 48.4 x 4.0% = 1.9 -- x 4.2% = --
Equity \20\................. 58.6 x 10.2% = 6.0 51.1 x 9.8% = 5.0
---------------------------------------------------------------------------
................. $8.0 ................. $5.1
C. Incremental cost of PSR policy:
Equity to meet policy........... $ -- x 10.2% = $ -- $2.7 x 9.8% = $0.3
---------------------------------------------------------------------------
D. Other required PSAF costs:
Sales taxes..................... $3.2 ................. $2.8 .................
Board of Governors expenses..... 5.4 ................. 5.0 .................
................. 8.6 ................. 7.8
---------------------------------------------------------------------------
................. $16.6 ................. $13.1
E. Total PSAF:
As a percent of assets.......... ................. 1.7% ................. 1.5%
As a percent of expenses........ ................. 3.9% ................. 3.6%
F. Tax rates:....................... ................. 22.7% ................. 21.6%
----------------------------------------------------------------------------------------------------------------
[[Page 75065]]
Table 6--Computation of 2017 Capital Adequacy for Federal Reserve Priced Services
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
Weighted
Assets Risk weight assets ($)
----------------------------------------------------------------------------------------------------------------
Imputed investments:
1-Year Treasury securities \21\............................. $ -- -- --
Federal funds \22\.......................................... 245.0 0.2 49.0
-----------------------------------------------
Total imputed investments............................... 245.0 .............. 49.0
Receivables..................................................... 36.6 0.2 7.3
Materials and supplies.......................................... 0.6 1.0 0.6
Prepaid expenses................................................ 11.2 1.0 11.2
Items in process of collection.................................. 241.0 0.2 48.2
Premises........................................................ 128.7 1.0 128.7
Furniture and equipment......................................... 39.0 1.0 39.0
Leasehold improvements and long-term prepayments................ 104.8 1.0 104.8
Pension asset................................................... 10.9 1.0 10.9
Deferred tax asset.............................................. 186.1 1.0 186.1
-----------------------------------------------
Total....................................................... 1,003.9 .............. 585.8
Imputed equity:
Capital to risk-weighted assets............................. 10.0%
Capital to total assets..................................... 5.8%
----------------------------------------------------------------------------------------------------------------
C. Check Service -- Table 7 shows the 2015 actual, 2016 estimated,
and 2017 budgeted cost-recovery performance for the commercial check
service.
Table 7--Check Service Pro Forma Cost and Revenue Performance
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
Recovery rate
Net income after targeted
Year Revenue Total expense (ROE) [1-2] Targeted ROE ROE (%) [1/(2
+ 4)]
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
2015 (actual)................... 160.6 140.2 20.4 2.0 113.0
2016 (estimate)................. 152.9 138.1 14.8 1.3 109.7
2017 (budget)................... 141.2 133.7 7.5 1.4 104.5
----------------------------------------------------------------------------------------------------------------
1. 2016 Estimate--The Reserve Banks estimate that the check service
will recover 109.7 percent of total expenses and targeted ROE, compared
with a 2016 budgeted recovery rate of 105.7 percent. Greater-than-
expected check volumes processed by the Reserve Banks and lower-than-
expected costs have influenced significantly the check service's cost
recovery.
---------------------------------------------------------------------------
\21\ If minimum equity constraints are not met after imputing
equity based on all other financial statement components, additional
equity is imputed to meet these constraints. Additional equity
imputed to meet minimum equity requirements is invested solely in
Treasury securities. 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 https://www.federalreserve.gov/releases/h15/data.htm.
\22\ The investments are imputed based on the amounts arising
from the collection of items prior to providing credit according to
established availability schedules.
---------------------------------------------------------------------------
The decline in Reserve Bank check volume, which is attributable to
the decline in the number of checks written generally, was not as great
as anticipated. Through August, total commercial forward check volume
is 3.9 percent lower and total commercial return check volume is 3.3
percent lower than for the same period last year. For full-year 2016,
the Reserve Banks estimate that their total forward check volume will
decline 5.2 percent (compared with a budgeted decline of 6.2 percent)
and their total return check volume will decline 6.8 percent (compared
with a budgeted decline of 12.7 percent) from 2015 levels.\23\
---------------------------------------------------------------------------
\23\ Total Reserve Bank forward check volumes are expected to
drop from 5.5 billion in 2015 to 5.2 billion in 2016. Total Reserve
Bank return check volumes are expected to drop from 33.2 million in
2015 to 30.9 million in 2016.
---------------------------------------------------------------------------
2. 2017 Pricing--The Reserve Banks expect the check service to
recover 104.5 percent of total expenses and targeted ROE in 2017. The
Reserve Banks project revenue to be $141.2 million, a decline of 7.7
percent from the 2016 estimate. This decline is driven largely by the
Reserve Banks' restructured FedForward, FedReturn, and FedReceipt fee
schedules, discussed below.\24\ Total expenses for the check service
are projected to decrease to $133.7 million, a decline of $4.4 million,
or 3.2 percent, from 2016 expenses primarily due to reduced operating
costs, including cost savings associated with increased efficiencies of
the Reserve Banks' customer support services for the FedACH and check
service lines.
---------------------------------------------------------------------------
\24\ This decline is also driven, in part, by anticipated
continuing decline in the number of checks written generally. The
Reserve Banks estimate that total commercial forward check volumes
in 2017 will decline 5.0 percent, to 4.9 billion, and total
commercial return check volumes will decline 10.1 percent to 27.8
million in 2017.
---------------------------------------------------------------------------
[[Page 75066]]
In July 2016, the Reserve Banks announced restructured FedForward,
FedReturn and FedReceipt fee schedules designed to reflect the
efficiencies of electronic check processing and better serve the needs
of the marketplace in today's electronic environment.\25\ The Reserve
Banks announced the restructured fee schedules earlier in the year to
provide customers with sufficient notice.\26\
---------------------------------------------------------------------------
\25\ As part of the Board's approval of the Reserve Banks' 2016
check fee schedules, the Board noted that the Reserve Banks would
announce changes to the check service to reflect the efficiencies of
today's electronic check processing environment. 79 FR 65937, 70785
(Nov. 16, 2015).
\26\ A full summary of the modifications was included with
Reserve Bank's announcement and is available at https://frbservices.org/files/servicefees/pdf/071116_2017_check_pricing_summary_of_changes.pdf. The Reserve Banks'
modified fee schedules are available at https://www.frbservices.org/servicefees/check_services_2016.html.
---------------------------------------------------------------------------
Specifically, the Reserve Banks announced simplified FedFoward and
FedReturn deposit products. The simplified deposit products will offer
two fixed-fee options: a per-image cash letter (ICL) fee and a daily
subscription fee.\27\ Both options will offer standard and premium
variations, with premium variations offering higher fixed and lower
per-item fees than the standard variations. Both options will also
include per-item fees, based on a modified volume-based tiered pricing
structure, with tiers defined by volume of items received by a
chartered institution from the Reserve Banks.\28\ Tiers for the three
premium variations of the daily subscription fee deposit options,
FedFoward Premium Daily Fee A, B, and C and FedReturn Premium Daily Fee
A, will be based only on volume received by a chartered institution
from a subset of the Reserve Banks' customers.\29\ The volumes used to
define all tiers will be evaluated and set annually as part of the
Board's approval of annual fee schedules.\30\
---------------------------------------------------------------------------
\27\ The per-ICL fee structure offers a fixed fee for each
deposited image cash letter and a per-item fee for each item in the
cash letter. The subscription structure offers a daily subscription
fee and a per-item fee for each item. Per-item fees are determined
by the Reserve Banks' volume-based tiered pricing structure.
\28\ Under the tiered pricing structure, depositors pay a
variable per-item fee based on the endpoint to which an item is
being delivered. Tiers are currently determined at the individual
routing number.
\29\ The Reserve Banks believe the top 15 customers, which
account for approximately 33 percent of the Reserve Banks' deposit
volume, represent the most-likely users of the Premium Daily Fee
deposit options because of the high daily fixed fees and lower per-
item fees.
\30\ The tiers for 2017 are available at https://www.frbservices.org/servicefees/check21_endpoint_listing.html.
---------------------------------------------------------------------------
The Premium Daily Fee deposit options will include a fifth tier,
Tier 0, comprised of routing numbers for which the Reserve Banks
currently receive little to no volume from the specified subset of
Reserve Bank customers (and therefore cannot currently be assigned to
the other tiers with sufficient certainty). Tier 0 will also be
evaluated annually, along with all other tiers, so that if volume
migrates to routing numbers in tier 0 (enabling more information on
which to assign a tier) those routing numbers will be moved to the
appropriate tier.
In October 2016, the Reserve Banks announced minor modifications to
the Premium Daily Fee products.\31\ To clarify Tier 0's transitional
purpose, the Reserve Banks announced that routing numbers cannot be
placed in Tier 0 if they have previously been assigned to one of the
other tiers. Based on additional review of Tier 0's composition, the
Reserve Banks also announced that a routing number will only be
assigned to Tier 0 if the chartered institution receives a minimum of
150 items daily.\32\ As a result, the Reserve Banks determined that
approximately 3,800 routing numbers initially included in Tier 0 could
more appropriately be placed in another tier, Tier 4.\33\
---------------------------------------------------------------------------
\31\ For the announcement, see https://frbservices.org/files/communications/pdf/check/100316-check-modification-announcement.pdf.
\32\ The Reserve Banks determined after further analysis that a
floor of 150 items daily was appropriate to avoid placing small
institutions in Tier 0 because of limited total volumes
(institutions below the floor receive an average of only 47 items
daily).
\33\ To minimize any customer impact of these changes, the
Reserve Banks also reduced the Tier 4 per-item fees and daily fixed
fees for two of the Premium Daily Fee deposit options.
---------------------------------------------------------------------------
The Reserve Banks also announced that most sorted-deposit options
will be eliminated, including the Fine Sort ICL, Deferred Fine Sort
ICL, and Fixed Mixed ICL deposit options.\34\ The Reserve Banks
announced that they will not, however, modify the Endpoint-Culled ICL
deposit option, the Dollar Cut Mixed ICL (renamed ``Dollar-Culled
ICL'') option, or the Deferred Mixed ICL (renamed ``Deferred ICL'')
option.\35\ The Reserve Banks will continue to allow separately sorted
Treasury Check, Postal Money Order, and Savings Bond ICLs.
---------------------------------------------------------------------------
\34\ In a paper check processing environment, the fine-sort
products allowed the Reserve Banks to gain efficiencies because the
checks did not require processing on reader-sorters. In today's
electronic check processing environment, all ICLs are processed
through the Reserve Banks' electronic system in the same manner, and
the Reserve Banks do not gain any efficiencies by having the
depositing bank fine-sort electronic checks before deposit.
\35\ Under the Endpoint-Culled ICL deposit option (offered only
at 12:00 p.m. ET), items drawn on routing numbers enrolled in the
Reserve Banks' Premium Presentment service and those presented as
substitute checks are culled from the cash letter by the Reserve
Banks and placed into a Deferred Imaged Cash Letter, with depositors
receiving next-day credit availability on those items. The product
allows the Reserve Banks to limit instances where same-day credit is
offered for items that cannot be collected same day (the Reserve
Banks similarly cull items deposited on the 12:00 p.m. ET deposit
deadline offered as part of the Premium Daily Fee deposit options).
Under the Deferred ICL deposit option, credit for all items
deposited is deferred until the next business day. Under the Dollar-
Culled ICL deposit option, items written for less than $1,000, plus
all items for $1,000 or more that are drawn on a substitute check
endpoint, are culled from the cash letter by the Reserve Banks and
placed into a Deferred Imaged Cash Letter, with depositors receiving
the next-day credit availability of that deposit option. Items of
$1,000 or more (except for those that will be presented as
substitute checks) are kept in the original cash letter, with same-
day credit availability at the next deadline according to the
Federal Reserve Policy on Payment System Risk.
---------------------------------------------------------------------------
Finally, the Reserve Banks announced modifications to their
FedReceipt product, including reduced FedReceipt fees for forward and
return items and elimination of the FedReceipt Plus Deposit Discount
for both FedForward and FedReturn deposits.\36\ The Reserve Banks also
announced that they will modify volume tiers for their Courtesy
Delivery service (renamed ``Accelerated Delivery Service'') and that
the Retail Payments Premium Receiver discount will be applied to items
deposited by a chartered institution rather than on items received.
Both products remain otherwise unchanged.
---------------------------------------------------------------------------
\36\ The Reserve Banks implemented the deposit discount
structure to encourage banks to transition from paper to electronic
items. With the Reserve Banks presenting and returning more than 99
percent of items electronically, the discount is no longer necessary
to encourage banks to move away from paper.
---------------------------------------------------------------------------
The Reserve Banks estimate that the price changes will result in a
3.5 percent average price decrease for check customers.
The primary risks to the Reserve Banks' ability to achieve budgeted
2017 cost recovery for the check service include lower-than-expected
check volume due to reductions in check writing overall and competition
from correspondent banks, aggregators, and direct exchanges, which
would result in lower-than-anticipated revenue.
D. FedACH Service--Table 8 shows the 2015 actual, 2016 estimate,
and 2017 budgeted cost-recovery performance for the commercial FedACH
service.
[[Page 75067]]
Table 8--FedACH Service Pro Forma Cost and Revenue Performance
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
Recovery rate
Net income after targeted
Year Revenue Total expense (ROE) [1-2] Targeted ROE ROE %, [1/(2 +
4)]
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
2015 (actual)................... 125.5 122.8 2.7 1.8 100.7
2016 (estimate)................. 130.7 131.0 -0.3 1.3 98.8
2017 (budget)................... 140.4 145.4 -5.1 1.6 95.5
----------------------------------------------------------------------------------------------------------------
1. 2016 Estimate--The Reserve Banks estimate that the FedACH
service will recover 98.8 percent of total expenses and targeted ROE,
compared with a 2016 budgeted recovery rate of 99.5 percent. Through
August, FedACH commercial origination and receipt volume was 5.8
percent higher than it was during the same period last year. For full-
year 2016 the Reserve Banks estimate that FedACH commercial origination
and receipt volume will increase 4.9 percent, compared with a budgeted
increase of 4.5 percent. Although volume is higher than originally
projected, the Reserve Banks estimate lower-than-budgeted 2016 cost
recovery due to higher than anticipated environmental costs such as an
increase in pension expense and refinement in the accounting treatment
between capital and expenses for the FedACH technology modernization
program.\37\
---------------------------------------------------------------------------
\37\ The Reserve Banks have been engaged in a multiyear
technology initiative to modernize the FedACH processing platform by
migrating the service from a mainframe system to a distributed
computing environment. In 2016, the Reserve Banks chose a
commercially available option as their processing solution to
modernize the FedACH platform.
---------------------------------------------------------------------------
2. 2017 Pricing--The Reserve Banks expect the FedACH service to
recover 95.5 percent of total expenses and targeted ROE in 2017. FedACH
commercial origination and receipt volume is projected to grow 5.7
percent, contributing to an increase of $9.7 million in total revenue
from the 2016 estimate. Total expenses are budgeted to increase $14.4
million from 2016 expenses, primarily because of costs associated with
the development of a new FedACH technology platform.
The Reserve Banks will increase the minimum monthly fee for forward
origination from $45 to $50 and the minimum monthly fee for receipt
from $35 to $40.\38\ The Reserve Banks also will increase the FedACH
Account Servicing Fee from $45 to $58 and change the fee name to the
``FedACH Participation fee,'' to reflect more accurately the intention
of the fee, which is to recover fixed costs related to participation in
the FedACH network. The Reserve Banks also will eliminate the on-us
receipt credit of $0.0032 per item. All on-us items will be charged the
current FedACH receipt per-item fee of $0.0032 per item.
---------------------------------------------------------------------------
\38\ Any originating depository financial institution (ODFI)
incurring less than $50 for the following fees will be charged the
difference to reach the minimum: Forward value and nonvalue item
origination fees, FedGlobal ACH origination surcharges, and FedACH
SameDay forward origination surcharges.
Any receiving depository financial institution (RDFI) that
incurs less than $40 in receipt fees and originates forward value
and nonvalue items incurring less than $50 in origination fees will
only be charged the difference in the origination fee to reach the
minimum monthly origination fee of $50. Any RDFI that incurs less
than $40 in receipt fees and is not originating forward value and
nonvalue items will incur the $40 minimum monthly fee for receipt.
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The Reserve Banks will increase the FedACH Information Extract File
fee from $100 to $150 per file. The Reserve Banks also will increase
the FedPayments Reporter fee approximately 10 percent rounded to the
nearest $5 for each level of the tiered package pricing. They also will
introduce a new top tier, with a $1,800 monthly fee, for a package that
includes more than 10,000 reports.
Further, the Reserve Banks will introduce a fixed monthly fee and a
volume-based tiered pricing structure for the FedGlobal ACH
service.\39\ The tiered pricing structure will include per-item
surcharges that are in addition to the standard FedACH origination fee
of $0.0032 and vary according to the transaction's destination, as seen
in table 9. The top tier will cover monthly origination volume over 500
items and include a $185 fixed monthly fee and a per-item surcharge
that is $0.12 lower than current per-item fees. The next tier will
cover monthly origination volume between 161 and 500 items and include
a $60 fixed monthly fee and a per-item surcharge that is $0.13 higher
than current per-item fees. The bottom tier will cover monthly
origination volume between 0 and 160 items and include a $20 fixed
monthly fee and a per-item surcharge that is $0.38 higher than current
per-item fees.
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\39\ The FedGlobal ACH pricing changes meet the Federal Reserve
Board's guidance on the Reserve Banks' use of volume-based pricing
for electronic payment services and products. 62 FR 14146 (March 25,
1997) (FRB Docket No. R-0967).
Table 9--FedGlobal ACH Service Volume-Based Origination Surcharges \40\
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Fixed monthly Canada (per Mexico (per Panama (per Europe (per
Volume (items) fee transaction) transaction) transaction) transaction)
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More than 500................................................. $185 $0.50 $0.55 $0.60 $1.13
161-500....................................................... 60 0.75 0.80 0.85 1.38
0-160......................................................... 20 1.00 1.05 1.10 1.63
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The Reserve Banks estimate that the price changes will result in a
5.3 percent average price increase for FedACH customers.
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\40\ These per-item surcharges are in addition to the standard
domestic FedACH origination fees.
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While the Reserve Banks are not budgeted to fully recover costs in
2017, they are expected to fully recover costs
[[Page 75068]]
following finalization of the FedACH technology modernization project.
The Reserve Banks' FedACH fee increases balance raising fees
dramatically during a temporary period of increased costs associated
with a defined technology upgrade that will be expected to result in
significant over recovery following this defined period. The approach
to moderately increase fees only is consistent with a multi-year
strategy to minimize pricing volatility and provide long-term price
stability for customers while undertaking the ongoing technology
upgrade that will result in FedACH incurring higher expenses over the
next few years.
The primary risks to the Reserve Banks' ability to achieve budgeted
2017 cost recovery for the FedACH service are cost overruns associated
with unanticipated problems related to efforts to modernize the FedACH
processing platform and higher-than-expected support and overhead
costs. Other risks include lower-than-expected volume and associated
revenue due to unanticipated mergers and acquisitions and loss of
market share due to direct exchanges and a shift of volume to the
private-sector operator.
E. Fedwire Funds and National Settlement Services--Table 10 shows
the 2015 actual, 2016 estimate, and 2017 budgeted cost-recovery
performance for the Fedwire Funds and National Settlement Services.
Table 10--Fedwire Funds and National Settlement Services Pro Forma Cost and Revenue Performance
[Dollars in millions]
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Recovery rate
Net income after targeted
Year Revenue Total expense (ROE) [1-2] Targeted ROE ROE (%) [1/(2
+ 4)]
1 2 3 4 5
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2015 (actual)............................................. 116.0 110.1 5.9 1.6 103.9
2016 (estimate)........................................... 123.1 118.0 5.1 1.3 103.2
2017 (budget)............................................. 128.8 126.3 2.6 1.3 101.0
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1. 2016 Estimate--The Reserve Banks estimate that the Fedwire Funds
and National Settlement Services will recover 103.2 percent of total
expenses and targeted ROE, compared with a 2016 budgeted recovery rate
of 99.4 percent. Through August, Fedwire Funds Service online volume
was 3.6 percent higher than for the same period last year. For full-
year 2016, the Reserve Banks estimate Fedwire Funds Service online
volume to increase 1.9 percent from 2015 levels, compared with the 0.3
percent volume decrease that had been budgeted. The Reserve Banks do
not expect the volume growth in 2015 and early 2016 to continue at that
level through year-end. Through August, National Settlement Service
settlement file volume was 1.0 percent lower than for the same period
last year, and settlement entry volume was 3.0 percent lower. For the
full year, the Reserve Banks estimate that settlement file volume will
decrease 1.1 percent (compared with a budgeted 5.3 percent increase)
and settlement entry volume will decrease 4.0 percent from 2015 levels
(compared with a budgeted 0.8 percent decrease). NSS settlement file
and entry volumes are anticipated to be lower than budgeted, as the
onboarding of a new arrangement originally expected to occur in the
fourth quarter of 2016 has now been delayed until 2017.
2. 2017 Pricing--The Reserve Banks expect the Fedwire Funds and
National Settlement Services to recover 101.0 percent of total expenses
and targeted ROE. Revenue is projected to be $128.8 million, an
increase of 4.6 percent from the 2016 estimate. The Reserve Banks
project total expenses to be $8.3 million higher than the 2016
expenses, primarily because of capitalized software costs associated
with the Fedwire Funds modernization program that will be amortized
until January 2022 and other costs related to new resiliency
initiatives.
The Reserve Banks will adjust the incentive pricing fees for the
Fedwire Funds Service by increasing the Tier 1 per-item preincentive
fee (the fee before volume discounts are applied) from $0.790 to
$0.820, increasing the Tier 2 per-item preincentive fee from $0.240 to
$0.245, and increasing the Tier 3 per-item preincentive fee from $0.155
to $0.170.\41\ The Reserve Banks also will increase the surcharge for
offline transactions from $55 to $60. The Reserve Banks estimate that
the price changes will result in a 3.3 percent average price increase
for Fedwire Funds customers.
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\41\ The per-item preincentive fee is the fee that the Reserve
Banks charge for transfers that do not qualify for incentive
discounts. The Tier 1 per-item preincentive fee applies to the first
14,000 transfers, the Tier 2 per-item preincentive fee applies to
the next 76,000 transfers, and the Tier 3 per-item preincentive fee
applies to any additional transfers. The Reserve Banks apply an 80
percent incentive discount to transfers over 60 percent of a
customer's historic benchmark volume.
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The Reserve Banks will not change National Settlement Service fees
for 2017.
The primary risks to the Reserve Banks' ability to achieve budgeted
2017 cost recovery for these services are cost overruns from new
initiatives to improve resiliency and operational functionality.
F. Fedwire Securities Service--Table 11 shows the 2015 actual, 2016
estimate, and 2017 budgeted cost recovery performance for the Fedwire
Securities Service.\42\
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\42\ 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 consists of
revenues, expenses, and volumes associated with the transfer of all
non-Treasury securities. For Treasury securities, the U.S. Treasury
assesses fees for the securities transfer component of the service.
The Reserve Banks assess a fee for the funds settlement component of
a Treasury securities transfer; this component is not treated as a
priced service.
[[Page 75069]]
Table 11--Fedwire Securities Service Pro Forma Cost and Revenue Performance
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
Recovery rate
Net income after targeted
Year Revenue Total expense (ROE) [1-2] Targeted ROE ROE (%) [1/(2
+ 4)]
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
2015 (actual)................... 27.1 24.7 2.4 0.3 108.2
2016 (estimate)................. 25.8 26.2 -0.4 0.3 97.6
2017 (budget)................... 29.0 29.4 -0.4 0.3 97.5
----------------------------------------------------------------------------------------------------------------
1. 2016 Estimate--The Reserve Banks estimate that the Fedwire
Securities Service will recover 97.6 percent of total expenses and
targeted ROE, close to the 2016 budgeted recovery rate of 97.5 percent.
Through August, Fedwire Securities Service online agency transfer
volume was 13.1 percent lower than during the same period last year.
For full-year 2016, the Reserve Banks estimate Fedwire Securities
Service online agency transfer volume will decline 13.5 percent from
2015 levels, compared with a budgeted decline of 5.4 percent. The
lower-than-expected online agency transfer volume resulted from lower-
than-projected Agency debt issuance, as Fannie Mae and Freddie Mac
continue to reduce the overall size of their portfolios in accordance
with Federal Housing Finance Agency guidelines. In addition, new
mortgage originations and mortgage paydowns from refinancing activity
are expected to decline before year-end if interest rates rise in the
fourth quarter, which will result in falling levels of issuance and
settlement activity for agency mortgage-backed securities over Fedwire
Securities. Through August, account maintenance volume was 4.4 percent
lower than during the same period last year. For the full year 2016,
the Reserve Banks estimate that account maintenance volume will decline
5.0 percent over 2015 levels, compared with a budgeted decline of 8.8
percent. The higher account maintenance volume is the result of
conservative estimates for customer account closures that have not
materialized.
2. 2017 Pricing--The Reserve Banks expect the Fedwire Securities
Service to recover 97.5 percent of total expenses and targeted ROE in
2017. The Reserve Banks project that online agency transfer activity
will decline 7.5 percent in 2017, the number of accounts maintained
will decrease 7.4 percent, and the number of agency issues maintained
will decrease 2.4 percent.\43\ The projected decline in both online
transfer and account maintenance volume in 2017 reflects, in part, an
anticipated drop in demand resulting from JP Morgan Chase's exit from
the U.S. government securities clearing and settlement business for its
broker-dealer services by mid-2018.\44\ Moreover, as in 2016, the
Reserve Banks continue to project a decrease in online transfers as
interest rates may possibly increase, leading to less mortgage
refinancing, and, in turn, reducing issuances of mortgage-backed
securities. In addition, the reduction in agency debt issuance will
continue to reflect a reduction in government-sponsored enterprise
portfolios, as required by the U.S. Treasury and the Federal Housing
Finance Agency, leading to a reduced funding need for new debt
issuance.\45\ New settlement logic launched by the Fixed Income
Clearing Corporation in January 2016, and further changes in mid-2017
are also expected to reduce the number of agency debt transfers over
the Fedwire Securities Service.\46\
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\43\ The online transfer fee, monthly account maintenance fee,
and monthly issue maintenance fee accounted for approximately 93
percent of total Fedwire Securities Service revenue through June
2016.
\44\ JP Morgan Chase announced in July 2016, its intent to exit
the government securities clearing and settlement business. It is
expected that the exit will result in significant reductions of
transfer volume over Fedwire Securities as more transactions shift
to in-house activity at the remaining custodian banks.
\45\ Government-sponsored enterprises are reducing their
retained portfolio by 15 percent annually through 2018, as mandated
by the Senior Preferred Stock Purchase Agreements, until each
portfolio reaches a target level of $250 billion. Further
information on these agreements can be found at: https://www.fhfa.gov/Conservatorship/Pages/Senior-Preferred-Stock-Purchase-Agreements.aspx.
\46\ Information on the Fixed Income Clearing Corporation's new
settlement logic can be found at https://www.dtcc.com/~/media/Files/
pdf/2015/6/22/GOV045-15.pdf.
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Revenue is projected to be $29.0 million, an increase of 12.4
percent from the 2016 estimate; this projected rise in revenue results
from higher fees, discussed below, that offset the anticipated online
transfer and account maintenance volume declines. The Reserve Banks
also project that 2017 expenses will increase by $3.2 million, compared
with 2016 expenses, reflecting higher expected operating costs. Higher
operating costs in 2017 reflect the amortization of capital software
costs from completed modernization initiatives as well as the
advancement of new initiatives to improve resiliency and operational
functionality.
The Reserve Banks will increase the online agency transfer fee from
$0.65 to $0.77 and increase the offline origination and receipt
surcharge transfer fee from $66 to $80. The Reserve Banks also will
increase the monthly agency issues maintenance fee from $0.65 to $0.77
and will increase the monthly account maintenance fee from $48 to
$57.50. Moreover, the Reserve Banks will increase the joint custody
origination surcharge from $44 to $46. Finally, the Reserve Banks will
increase the claims adjustment fees from $0.75 to $0.80. The Reserve
Banks estimate that the price changes will result in an 18.0 percent
average price increase for Fedwire Securities customers.
The primary risks to the Reserve Banks' ability to achieve budgeted
2017 cost recovery for these services are lower-than-expected volume
resulting from the pace of structural changes in government securities
settlement, and cost overruns from new initiatives to improve
resiliency and operational functionality.
G. FedLine Access--The Reserve Banks charge fees for the electronic
connections that depository institutions use to access priced services
and allocate the costs and revenue associated with this electronic
access to the various priced services. There are currently five FedLine
channels through which customers can access the Reserve Banks' priced
services: FedMail, FedLine Web, FedLine Advantage, FedLine Command, and
FedLine
[[Page 75070]]
Direct.\47\ The Reserve Banks package these channels into nine FedLine
packages, described below, that are supplemented by a number of premium
(or a la carte) access and accounting information options. In addition,
the Reserve Banks offer FedComplete packages, which are bundled
offerings of a FedLine Advantage connection and a fixed number of
FedACH, Fedwire Funds, and Check 21-enabled services.
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\47\ FedMail, FedLine Web, FedLine Advantage, FedLine Command,
and FedLine Direct are registered trademarks of the Federal Reserve
Banks.
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Six attended access packages offer manual access to critical
payment and information services via a web-based interface. The FedLine
Exchange package provides access to basic information services via
email, while two FedLine Web packages offer an email option plus online
attended access to a range of services, including cash services, FedACH
information services, and check services. Three FedLine Advantage
packages expand upon the FedLine Web packages and offer attended access
to critical transactional services: FedACH, Fedwire Funds, and Fedwire
Securities.
Three unattended access packages are computer-to-computer, IP-based
interfaces. The FedLine Command package offers an unattended connection
to FedACH, as well as most accounting information services. The two
remaining options are FedLine Direct packages, which allow for
unattended connections at one of two connection speeds to FedACH,
Fedwire Funds, and Fedwire Securities transactional and information
services and to most accounting information services.\48\
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\48\ None of the FedLine packages offer an unattended connection
to check services. The Reserve Banks offer an unattended check
product, Check 21 Large File Delivery, outside of the FedLine suite
that allows a depository institution to upload and download check
image cash letters automatically via a direct network connection to
the Reserve Banks.
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For the 2017 FedLine fees, the Reserve Banks will increase five
existing monthly fees: (1) The FedLine Web Plus fee from $140 to $160,
(2) the FedLine Direct Premier fee from $6,500 to $6,700, (3) the
FedComplete 200 Plus fee from $1,300 to $1,350, (4) the FedComplete 200
Premier fee from $1,375 to $1,425, and (5) the FedMail Fax a la carte
fee from $70 to $100. As in previous years, the Reserve Banks will
introduce new fees on legacy services. In particular, the Reserve Banks
will implement a legacy software fee to encourage FedLine Direct
customers to migrate to an enhanced messaging solution.\49\ To provide
customers sufficient time to migrate, the fee will not become effective
until the third quarter of 2017. The fee will be introduced on July 1,
2017, at $5,000 per month and will increase in steps to $20,000 per
month by the end of 2017.\50\ In addition, the Reserve Banks will
remove the legacy email service from all FedLine Web, Advantage,
Command, and Direct packages and introduce a $20-per-month fee to
purchase an a la carte subscription to this service. Customers in these
packages that currently use the email service will have the opportunity
to cancel the service to avoid the a la carte fee.
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\49\ To avoid the fee, FedLine Direct customers will need to
configure their systems to run a supported version of the MQ
platform. MQ is a critical messaging component that facilitates the
exchange of information between applications, systems, services and
files.
\50\ The fee will increase to $10,000 per month on September 1,
2017, and to $20,000 per month on November 1, 2017.
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In addition, the Reserve Banks will modify the E-Payments Routing
Directory and make several associated changes to FedLine packages and
fees.\51\ Currently, all FedLine Web, Advantage, Command, and Direct
packages include two services to download the directory: manual and
automated.\52\ The Reserve Banks will introduce a new automated
download service that will allow subscribers to provide access to the
directory to their customers (that is, non-financial institutions that
require access to the directory). Access to the directory will be
controlled through the use of download codes, and financial
institutions will be responsible for distributing the codes to their
respective customers. Additionally, the Reserve Banks will include the
automated download service in only plus- and premier-level FedLine
packages.\53\ Five download codes will be included in these packages,
and additional codes will be available to purchase through an a la
carte option (codes will be available in bundles ranging in price from
$75 to $2,000 per month).
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\51\ E-Payments Routing Directory provides basic routing
information for Fedwire Funds, Fedwire Securities, and FedACH
transactions.
\52\ The manual service allows subscribers to download the
directory in a manual fashion via a web-based interface. The
automated service allows subscribers to schedule daily, weekly, or
monthly automated (unattended) downloads of the directory.
\53\ Plus- and premier-level packages are FedLine Web Plus,
FedLine Advantage Plus and Premier, FedLine Command Plus, and
FedLine Direct Plus and Premier. In addition the new FedLine
Exchange Premier package will have access to the automated service.
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To accommodate the enhancements to the E-payments Directory, the
Reserve Banks will introduce a new FedLine Exchange service, along with
a new set of associated packages. Currently, the FedLine Exchange
service is an email-based interface, and there is only one package
available. The new FedLine Exchange service--which will be a web-based
interface (that is, accessible via a web browser rather than email)--
will allow customers that do not use FedLine for Federal Reserve
Financial Services to access the E-Payments Routing Directory.\54\ The
new service will be available in two packages: A base-level and
premier-level. The base package, priced at $40 per month, will include
the manual download directory service. The premier package, priced at
$125 month, will include both the manual and automated download
directory services.\55\ To ensure continuity of service, the services
available in the existing FedLine Exchange package will continue to be
available through a new package, FedMail, as discussed below.
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\54\ Customers that do not use FedLine to access Federal Reserve
Financial Services are generally small financial institutions that
partner with a payment processor or other third party for
transactional processing.
\55\ FedLine Exchange customers will need to request credentials
to access the manual directory download service. These credentials
will be billed via a FedMail-FedLine Exchange Subscriber 5-pack. The
automated download directory service under the FedLine Exchange
Premier package includes five download codes so a separate
subscriber 5-pack is not required.
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The Reserve banks will introduce a new FedMail package, priced at
$85 per month, which will include the same email-based services
included in the existing FedLine Exchange package.\56\ Subscribers of
the existing FedLine Exchange package will be transitioned to the new
FedMail package and experience a fee increase of $45.\57\
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\56\ The addition of the FedMail package and the FedLine
Exchange Premier package will increase the total number of FedLine
packages from nine to eleven.
\57\ The $45 increase represents the difference in price between
the new FedMail package ($85) and the existing FedLine Exchange
package ($40).
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The Reserve Banks estimate that the price changes will result in an
8.1 percent average price increase for FedLine customers.
II. Analysis of Competitive Effect
All operational and legal changes considered by the Board that have
a substantial effect on payment system participants are subject to the
competitive impact analysis described in the March 1990 policy ``The
Federal Reserve in the Payments System.'' \58\ Under this policy, the
Board assesses whether proposed changes will have a direct and material
adverse effect on the ability of other service providers to compete
effectively with the Federal
[[Page 75071]]
Reserve in providing similar services because of differing legal powers
or constraints or because of a dominant market position deriving from
such legal differences. If any proposed changes create such an effect,
the Board must further evaluate the changes to assess whether the
benefits associated with the changes--such as contributions to payment
system efficiency, payment system integrity, or other Board
objectives--can be achieved while minimizing the adverse effect on
competition.
---------------------------------------------------------------------------
\58\ Federal Reserve Regulatory Service (FRRS) 9-1558.
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The 2017 fees, fee structures, and changes in service will not have
a direct and material adverse effect on the ability of other service
providers to compete effectively with the Reserve Banks in providing
similar services. The changes should permit the Reserve Banks to earn a
ROE that is comparable to overall market returns and provide for full
cost recovery over the long run.
III. 2017 Fee Schedules
BILLING CODE 6210-01-P
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By order of the Board of Governors of the Federal Reserve
System, October 25, 2016.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016-26068 Filed 10-27-16; 8:45 am]
BILLING CODE 6210-01-C
