Federal Reserve System May 23, 2005 – Federal Register Recent Federal Regulation Documents

The Board requests comment on potential modifications to the method for calculating the target return on equity (ROE) in the private-sector adjustment factor (PSAF). The PSAF imputes the costs that would have been incurred and profits that would have been earned had the Federal Reserve Banks' priced services been provided by a private firm. The Monetary Control Act of 1980 (MCA) requires that the Federal Reserve set fees for its services to recover, over the long run, its actual costs of providing the services, as well as the imputed costs and profits. The Board reviews its method for calculating the PSAF periodically to assess whether it is still appropriate in light of the changing business and regulatory environment, industry practices, and accounting standards. Specifically, the Board requests comment on possible changes to the current method to compute a target rate of return on equity capital, including changes to the analytical models and peer group institutions used. The Board's method for setting its overall level of equity capital would continue to be based on the Federal Deposit Insurance Corporation (FDIC) guidelines for a well-capitalized institution for insurance premium purposes.