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Board of Governors of the Federal Reserve System

2007

Board of Governors of the Federal Reserve System

2007

April 2007
This publication is available from Publications Fulﬁllment, MS-127, Board of Governors of
the Federal Reserve System, Washington, DC 20551. It is also available on the Board’s web
site, www.federalreserve.gov.

Contents
Introduction

1 Summary of 2006 Income and Expenditures
2 Operational Areas

The Budgets
7
8
8
9

Chapter 1
FEDERAL RESERVE SYSTEM
2007 System Budget Initiatives
Trends in Expenses and Employment
2007 Capital Budgets

11
11
11
13
13

Chapter 2
BOARD OF GOVERNORS
2006 Budget Performance
Positions
Ofﬁce of Inspector General
Areas of Risk

15
16
16
18
18
19

Chapter 3
FEDERAL RESERVE BANKS
2006 Budget Performance
Factors Affecting the 2007 Budget
2007 Personnel Expenses
Risks in the 2007 Budget
2007 Capital Plan

Appendixes
Appendix A
23 FEDERAL RESERVE BUDGET PROCESSES
23 Board of Governors
23 Reserve Banks
Appendix B
25 PRICED SERVICES
25 Annual Pricing Process
27
27
28
28
29

Appendix C
CURRENCY BUDGET
Printing of Federal Reserve Notes
Currency Transportation
Counterfeit-Deterrence Research
Treasury’s Ofﬁce of Currency Standards

Appendix D
31 EXPENSES AND EMPLOYMENT AT THE BOARD OF GOVERNORS
Appendix E
35 EXPENSES AND EMPLOYMENT AT THE FEDERAL RESERVE BANKS
40 MAPS OF THE FEDERAL RESERVE SYSTEM

Introduction 1

Introduction
The Federal Reserve System—the nation’s
central bank—consists of the Board
of Governors in Washington, D.C., the
twelve Federal Reserve Banks with their
twenty-ﬁve Branches distributed through
out the nation, the Federal Open Market
Committee (FOMC), and three advisory
groups—the Federal Advisory Council,
the Consumer Advisory Council, and the
Thrift Institutions Advisory Council. The
System was created in 1913 by Congress
to establish a safe and ﬂexible monetary
and banking system. Over the years, Con
gress has given the Federal Reserve more
authority and responsibility for achieving
broad national economic and ﬁnancial
objectives.
The duties of the Federal Reserve fall
into four general areas: (1) conducting
the nation’s monetary policy by inﬂuenc
ing the monetary and credit conditions
in the economy in pursuit of maximum
employment, stable prices, and moderate
long-term interest rates; (2) supervising
and regulating banking institutions to
ensure the safety and soundness of the
nation’s banking and ﬁnancial system and
to protect the credit rights of consumers;
(3) maintaining the stability of the ﬁnan
cial system and containing systemic risk
that may arise in ﬁnancial markets; and
(4) providing ﬁnancial services to deposi
tory institutions, the U.S. government, and
foreign ofﬁcial institutions.
The Federal Reserve System plays
a major role in the nation’s payment
mechanism. The Reserve Banks distrib
ute currency and coin; process Fedwire,
automated clearinghouse, and securities
transfers; and collect checks. In addi
tion, the Federal Reserve Banks serve as
the ﬁscal agents of the United States and
provide a variety of ﬁnancial services for
the Treasury, other government agen

cies, and other ﬁscal principals. For a
fuller discussion of the Federal Reserve’s
responsibilities, see the Board publication
The Federal Reserve System: Purposes
and Functions.

Summary of 2006 Income
and Expenditures
In carrying out its responsibilities in 2006,
the Federal Reserve System incurred an
estimated $1.6 billion in net operating
expenses. Total spending of an estimated
$3.1 billion was offset by an estimated
$1.5 billion in revenue from priced ser
vices, claims for reimbursements, and
other income.
The major source of Federal Reserve
Bank income is earnings from the port
folio of U.S. government securities in the
System Open Market Account, estimated
at $36.5 billion in 2006. Earnings in
excess of expenses, dividends, and surplus
are transferred to the U.S. Treasury—in
2006 an estimated $28.5 billion. (These
earnings are treated as receipts in the
U.S. budget accounting system and as
anticipated earnings projected by the
Ofﬁce of Management and Budget in the
U.S. budget.)
The information for 2006 is based on
expense estimates developed as part of
the budget process. Total 2006 expenses
were $3,058.3 million, a decrease of
$24.1 million, or 0.8 percent, from the
2006 estimate of $3,082.4 million.1
1. Beginning with the 1998–99 budget, the Board
of Governors has operated on a two-year budget
cycle and a four-year planning cycle. Given their
current business needs, the Federal Reserve Banks
maintain an annual budget cycle. For more informa
tion on the budget processes, see appendix A.

Annual Report: Budget Review, 2007

Operational Areas

Supervision and Regulation

In 2006 the Federal Reserve System
accounted for costs using the follow
ing categories: monetary and economic
policy, supervision and regulation of
ﬁnancial institutions, services to ﬁnancial
institutions and the public, services to
the U.S. Treasury and other government
agencies, and System policy direction
and oversight.

The Federal Reserve System plays a major
role in the supervision and regulation of
banks and bank holding companies. The
Board of Governors adopts regulations to
carry out statutory directives and estab
lishes System supervisory and regulatory
policies. The Reserve Banks conduct
on-site examinations and inspections of
state member banks and bank holding
companies; review applications for merg
ers, acquisitions, and changes in control
from banks and bank holding companies;
and take formal supervisory actions. In
2006, the Federal Reserve conducted
500 examinations of state member banks
(some of them jointly with state agen
cies) and 557 inspections and 3,257 risk
assessments of bank holding companies;
it acted on 1,378 proposals, representing
3,171 individual applications involving
bank holding company formations and
acquisitions, bank mergers, and other
transactions.
The Board also enforces state member
banks’ and certain foreign banking orga
nizations’ compliance with the federal
laws protecting consumers in their use of
credit and deposit products. Between July
1, 2005, and June 30, 2006, the System
conducted 321 consumer compliance
examinations: 303 covering state member
banks and 18 covering foreign banking
organizations. Additionally, during the
2005 reporting period, the System per
formed 276 Community Reinvestment
Act examinations.
The Board’s supervisory responsibili
ties also extend to the foreign operations
of U.S. banks and, under the International
Banking Act, to the U.S. operations of
foreign banks. Beyond these activities,
the Federal Reserve System maintains
continuous oversight of the banking
industry to ensure the overall safety and
soundness of the ﬁnancial system. This
broader responsibility is reﬂected in the

Monetary and Economic Policy
The monetary and economic policy opera
tional area encompasses Federal Reserve
actions to inﬂuence the availability and
cost of money and credit in the nation’s
economy. In 2006, the FOMC held
eight regularly scheduled meetings and
adjusted the federal funds rate four
times.
A vast amount of banking and ﬁnancial
data ﬂows through the Reserve Banks
to the Board, where the data are com
piled and made available to the public.
The research staffs at the Board and the
Reserve Banks use these data, along with
information collected by other public
and private institutions, to assess the
state of the economy and the relation
ships between the ﬁnancial markets and
economic activity. Staff members provide
background information for the Board of
Governors and for each meeting of the
FOMC by preparing detailed economic
and ﬁnancial analyses and projections
for the domestic economy and interna
tional markets. The Board and the FOMC
use these analyses and projections in
setting reserve requirements, setting
the discount rate (which affects the cost
of borrowing), and conducting open
market operations. Staff members also
conduct longer-run economic studies
on regional, national, and international
issues.

Introduction 3

System’s presence in ﬁnancial markets,
through open market operations, and in
its role as lender of last resort.

Services to Financial Institutions
and the Public
The Federal Reserve System plays a
central role in the nation’s payment sys
tems by ensuring that enough currency
and coin are in circulation to meet the
public’s demand. The Bureau of Engrav
ing and Printing prints currency and the
U.S. Mint mints coin, which the Reserve
Banks distribute to the public through
depository institutions. Reserve Banks
also receive deposits of currency and
coin from depository institutions, identify
suspect currency that they forward to
the U.S. Secret Service, and destroy
currency that is unfit for circulation.
In 2006, the Reserve Banks received
approximately $689.1 billion in currency
and $5.8 billion in coin from depository
institutions, distributed approximately
$711.2 billion in currency and $6.9 bil
lion in coin, and destroyed $84.7 billion
in unﬁt currency.
The Reserve Banks also play a central
role in the nation’s payment systems
by collecting checks and providing a
variety of electronic services for deposi
tory institutions. In 2006, the Reserve
Banks collected approximately 11.0
billion commercial checks, with a total
value of about $13.6 trillion. The Reserve
Banks’ automated clearinghouse (ACH)
service allows depository institutions
to send or receive credit and debit pay
ment transactions. ACH payments are
typically used for check payments, such
as payroll, dividend, mortgage, and bill
payments. In 2006, the Reserve Banks
processed approximately 9.2 billion
ACH transactions, valued at about $16.6
trillion. Approximately 11 percent of the
transactions were for the federal gov

ernment; the rest were for commercial
establishments.
The Reserve Banks’ Fedwire Funds
Service allows depository institutions
to draw on their reserve or clearing bal
ances at the Reserve Banks and to transfer
funds to other institutions that maintain
accounts at the Reserve Banks. In 2006,
the Reserve Banks processed more than
134 million Fedwire funds transfers, val
ued at more than $573 trillion.
The Reserve Banks’ National Settle
ment Service allows participants in
private clearing arrangements to settle
transactions through their Federal Reserve
accounts. Approximately 54 local and
national private arrangements, primar
ily check clearinghouse associations
but also other types of arrangements,
use the National Settlement Service.
In 2006, the Reserve Banks processed
over 470,000 settlement entries for these
arrangements.
The Reserve Banks’Fedwire Securities
Service provides securities services for
the handling of book-entry (computer
based) securities. The service allows
participants to electronically transfer to
other participants securities issued by the
Treasury, federal government agencies,
and other approved entities. In 2006,
participants originated approximately
23 million transfers valued at about
$386 trillion.

Services to the U.S. Treasury
and Other Government Agencies
Pursuant to the Federal Reserve Act, the
Reserve Banks provide ﬁscal agency and
depository services to the U.S. govern
ment and other ﬁscal principals. These
services relate to securities custody and
transfer, payments, deposits, and cus
tomer support. The federal government
and other ﬁscal principals reimburse the
Reserve Banks for the cost to provide

Annual Report: Budget Review, 2007

these services. In 2006, Reserve Banks
sought reimbursement of approximate
ly $426 million. Reimbursement was
received or is expected for all of the
expenses incurred.2
Reserve Banks issue, service, and
redeem marketable Treasury secur
ities and savings bonds and process
secondary-market Fedwire securities
transfers. In 2006, the Reserve Banks pro
cessed 148,000 commercial tenders for
Treasury securities and printed and mailed
nearly 29 million savings bonds. The
Reserve Banks operate two book-entry
(computer-based) securities systems for
the custody of Treasury securities—the
Fedwire securities service and a separate
computer application designed for retail
investors who plan to hold these securi
ties until maturity. Almost all book-entry
Treasury securities are maintained on
Fedwire, which is also the nation’s prin
cipal securities transfer mechanism.
Reserve Banks collect and disburse
funds on behalf of the federal government.
The Reserve Banks maintain the Trea
sury’s bank account, accept deposits, pay
checks drawn on the Treasury’s account,
and make Fedwire and automated clear
inghouse payments for the Treasury. In
2006, the Reserve Banks continued to
assist Treasury in its efforts to receive
and make payments electronically. For
example, the Reserve Banks operate the
Pay.gov Internet portal, which permits the
public to pay Treasury and agencies over
the Internet.
The Federal Reserve Bank of St. Louis,
on behalf of the Federal Reserve System,
2. The Reserve Banks are required by the Federal
Reserve Act to serve as ﬁscal agents and depositories
of the United States. By statute, the Department of
the Treasury is permitted, but not required, to pay
for these services.

invests excess Treasury balances with
approximately 1,000 depository institu
tions, which pay interest to the Treasury
for the use of the funds. In 2006, the
Federal Reserve invested approximately
$1.3 trillion of Treasury balances through
the program and collected over one billion
dollars in interest. Of these funds, $309.2
billion are callable on demand and pay
interest equal to the federal funds rate
less 25 basis points; $508 billion were
placed with depository institutions for
a set term, with the interest rate set at
auction. In addition, $478.9 billion of
these Treasury funds were placed with
depository institutions through reverse
repurchase agreements at an agreed-on
interest rate.
The Reserve Banks also provide ﬁs
cal agency and depository services to
other domestic and international entities.
Depending on the authority under which
the services are provided, the Reserve
Banks may maintain book-entry accounts
of securities, provide custody for the
stock of unissued, deﬁnitive (physical)
securities, maintain and update balances
of outstanding book-entry and deﬁnitive
securities for issuers, and maintain related
funds accounts.

System Policy Direction and
Oversight
This operational area encompasses activi
ties by the Board of Governors in super
vising Board and Reserve Bank programs.
At the System level, the expenses for these
activities are considered overhead and
are therefore allocated across the other
operational areas. At the Board level,
these expenses are not treated as overhead
or allocated to other operational areas.

The Budgets

Federal Reserve System 7

Chapter 1

Federal Reserve System
For 2007, total operating expenses are
budgeted at $3,268.1 million, an increase
of 6.0 percent from estimated 2006
expenses. Of this total, $2,953.3 million
is for the Reserve Banks and $314.8
million is for the Board of Governors
(tables 1.1 and 1.2). 1 Revenue from
priced services provided to depository
institutions is expected to total $981.3
million, or 30 percent of total budgeted
operating expenses. This revenue, com
bined with claims for reimbursement and
other income, results in the recovery of
44.4 percent of the System’s budgeted
2007 operating expenses.2 When these
items are deducted from budgeted 2007
1. The Board of Governors budgets on a two-year
cycle; in this chapter, 2007 values shown for the
System and the Board reﬂect the estimated secondyear effect of the Board’s 2006–07 budget.
2. Claims for reimbursement refers to costs of
ﬁscal agency and depository services provided to
the U.S. Treasury, other government agencies, and
other ﬁscal principals that are billed to these agen-

operating expenses, the net expenses of
the System are 12.0 percent higher than
estimated 2006 net operating expenses
(table 1.1).
Not included in the budget for opera
tions is the cost of new currency, budgeted
at $598.0 million for 2007, an increase
of 22.3 percent from the 2006 estimated
cost of $489.0 million.3 Including the
cost of new currency, the distribution of
expenses is similar to that in previous
years, with the Reserve Banks’ expenses
accounting for 76 percent of the total,
new-currency expenses accounting for
cies. Other income comes from services provided
on behalf of the U.S. Treasury that are paid for by
the depository institutions using the services, which
include the transfer of funds between depository
institutions and the Treasury.
3. The Federal Reserve pays for the printing
of new currency at the Bureau of Engraving and
Printing. This cost is not included in the Federal
Reserve operating expenses. For more information,
see appendix C, “Currency Budget.”

Table 1.1
Operating Expenses of the Federal Reserve System, Net of Receipts and Claims for
Reimbursement, 2005–07
Millions of dollars, except as noted
Percent change

2005
(actual)

2006
(estimated)

2007
(budgeted)

Total System operating expenses ...................

2,868.3

3,082.4

3,268.1

7.5

6.0

Less
Revenue from priced services ....................
Other income ..............................................
Claims for reimbursements1 .......................

994.7
1.0
396.5

1,027.7
1.2
430.1

981.3
1.5
466.7

3.3
25.0
8.5

–4.5
28.3
8.5

Equals
Net System operating expenses ..............

1,476.1

1,623.4

1,818.6

10.0

12.0

Item

Note: Components may not sum to totals and may not
yield percentages shown because of rounding.
Operating expenses reﬂect all redistributions for support
and overhead, and they exclude capital outlays.

2005–06

2006–07

1. Costs of fiscal agency and depository services
provided to the U.S. Treasury, other government agencies, and other ﬁscal principals that are billed to these
agencies.

Annual Report: Budget Review, 2007

Table 1.2
Expenses of the Federal Reserve System for Operations and Currency, 2005–07
Millions of dollars, except as noted
Percent change

2005
(actual)

2006
(estimated)

2007
(budgeted)

Reserve Banks1 ..............................................
Personnel ....................................................
Nonpersonnel .............................................

2,597.0
1,722.8
874.2

2,800.1
1,833.9
966.2

2,953.3
1,961.6
991.7

7.8
6.4
10.5

5.5
7.0
2.6

Board of Governors2 .....................................
Personnel ....................................................
Nonpersonnel .............................................

271.3
200.6
70.7

282.3
212.4
69.9

314.8
230.3
84.5

4.1
5.9
–1.1

11.5
8.4
20.9

Total System operating expenses ...............
Personnel ..................................................
Nonpersonnel............................................

2,868.3
1,923.4
944.9

3,082.4
2,046.3
1,036.1

3,268.1
2,191.9
1,076.2

7.5
6.4
9.7

6.0
7.1
3.9

Currency3 .......................................................

497.0

489.0

598.0

–1.6

22.3

Item

2005–06

2006–07

Note: Components may not sum to totals and may not
yield percentages shown because of rounding.
Operating expenses exclude capital outlays.
1. For detailed information on Reserve Bank expenses,
see chapter 3.

2. Excludes extraordinary items and expenses of the
Ofﬁce of Inspector General. See also chapter 2.
3. See appendix C.

16 percent, and Board expenses account
ing for the remainder (chart 1.1).
System employment is budgeted at
21,685 for 2007, a decrease of 49 from
the estimated 2006 level, largely because
of planned staff reductions by the Reserve
Banks.

and supervision and regulation, as well as
initiatives to improve the long-term efﬁ
ciency of check and cash operations. The
major factors affecting the 2007 Reserve
Bank budgets are outlined in more detail
in chapter 3.

2007 System Budget Initiatives
Bank budget plans fund increases in
central bank functions, monetary policy,
Chart 1.1
Distribution of Expenses of the Federal
Reserve System, 2007
Currency, 16%

Board of
Governors, 8%

Reserve Banks, 76%

Trends in Expenses and
Employment
From actual 1998 levels to budgeted 2007
amounts, the operating expenses of the
Federal Reserve System have increased
an average of 4.2 percent per year
(2.5 percent per year when adjusted for
inﬂation) (chart 1.2). Over the same peri
od, nondefense discretionary spending
by the federal government has increased
an annual average of 5.5 percent (chart
1.3). Over the 1998–2007 period, Fed
eral Reserve System employment has
decreased 2,967 (chart 1.4).
The primary factors in Reserve Bank
spending restraint and in the substantial
stafﬁng decreases over the past ten years
are restructuring efforts in the check

Federal Reserve System 9
Chart 1.2
Operating Expenses of the
Federal Reserve System, 1998–2007

Chart 1.4
Employment in the
Federal Reserve System, 1998–2007

Excludes special projects

Includes special projects
Billions of dollars

Thousands of persons

Current dollars

3.0
23

2.0

2000 dollars1

1.0

1998

2000

2002

2004

2006

1998

Note: For 2006, estimated; for 2007, budgeted.
1. Calculated with the GDP price deﬂator.

Chart 1.3
Cumulative Change in Federal Reserve
System Expenses and Federal Government
Expenses, 1998–2007
Includes special projects
Percent

60
40

Federal Reserve
1998

2000

2002

2004

2000

2002

2004

2006

Note: For 2006, estimated; for 2007, budgeted.

processing function and efﬁciency mea
sures in support and overhead functions.
Over the same ten-year period, check
costs increased 0.8 percent and stafﬁng
levels declined 7.1 percent. Local support

Federal government

2006

Note: Federal government expenses are discretionary
spending less expenditures on defense.
For 2006, estimated; for 2007, budgeted.

and overhead costs increased 1.6 percent
and stafﬁng levels declined 3.9 percent.

2007 Capital Budgets
The capital budget for the Reserve Banks
and the Board totals $607.5 million, with
$591.6 million budgeted for Reserve
Banks and Federal Reserve Information
Technology (FRIT) and $15.9 million
budgeted for the Board. As in previous
years, the 2007 capital budgets include
funding for projects that support the stra
tegic direction outlined by the individual
Reserve Banks, System business leaders,
and the Board. These strategic goals focus
on investments that improve operational
efﬁciencies and services to Bank custom
ers and on providing a safe, quality work
environment. More detailed discussions
of the Board and Reserve Bank capital
budgets are included in chapters 2 and 3,
respectively.

Board of Governors

Chapter 2

Board of Governors
The Board of Governors operates under
a two-year budget. In December 2005,
the Board approved the 2006–07 budget.
During the two-year budget cycle, minor
changes occur within the budget, which
are captured in an operating plan for each
division. Any increase to the overall bud
get must be approved by the Board.
The Board’s 2006–07 budget consists
of $609.5 million for operations, $31.4
million for capital, and $10.2 million
for the Ofﬁce of Inspector General. The
operations budget includes $9.0 million
for extraordinary items; these items
include the two surveys administered by
the Board every three years: the Survey
of Small Business and the Survey of Con
sumer Finances. (See table 2.1.)

2006 Budget Performance
The Board’s operations budget supports
four broadly deﬁned operational areas:
(1) monetary and economic policy;
(2) supervisory, regulatory, and legal ser
vices; (3) Federal Reserve System policy
direction; and (4) support and security
services (tables 2.1 and 2.2). In 2006,
estimated operating expenses were $282.5
million, or 46.3 percent of the two-year
budget.
The Board’s budget is composed of
expenses for personnel, goods and ser
vices, and capital. Estimated 2006 per
sonnel expenses, which represent about
three-quarters of budgeted operating
expenses, were $212.4 million, or 47.5
percent of the two-year personnel services
budget. Personnel expenses were less than
budgeted because the Board experienced
higher-than-expected vacancy rates,
which resulted in lower-than-expected
salary and beneﬁts expenses. The job mar
ket for many of the Board’s economist,

analytical, legal, and technical positions is
very competitive, and the Board seeks to
hire high-caliber individuals. Therefore,
the Board’s human resources function
continuously evaluates its recruitment
efforts and tools relative to the Board’s
competitors. Although recruitment chal
lenges have not kept the Board’s opera
tional areas from accomplishing their
missions, they have resulted in increased
staff workload. By the end of the two-year
budget cycle, the Board expects personnel
costs to approximate budgeted costs.
Estimated goods and services expenses
for 2006 were $70.0 million, or 43.1 per
cent of the two-year goods and services
budget. The underage was due to delays
in acquiring certain contractual profes
sional services and purchasing furniture
and equipment, which will shift some ex
penses into the second year of the budget.
In addition, expenses for some consulting
work have been lower than budgeted. The
postponement of some building repairs
and capital improvements also contributed
to the lower-than-expected expenses.
The Board’s 2006–07 capital budget
is $31.4 million. In 2006, estimated
capital expenditures were $8.8 million, or
28.0 percent of the two-year capital
budget. The rate of expenditures in 2006
was consistent with the planned timing
of capital projects for the period. Capital
expenditures needed to support operations
are primarily related to facilities improve
ments and acquisitions of computer
hardware and software. Such expendi
tures generally are not incurred equally
throughout the budget period.

Positions
Since the beginning of the 2006–07
budget period, the number of authorized

Annual Report: Budget Review, 2007

Table 2.1
Expenses of the Board of Governors for Operational Areas, Extraordinary Items, Capital, and
the Ofﬁce of Inspector General, 2004–07
Millions of dollars, except as noted
Operational area or
Ofﬁce of Inspector General

2004–05
(budgeted)

2004–05
(actuals)

2006–07
(budgeted)

2006 actual
expenses as a
percent of the
2006–07 budget

Monetary and economic policy ...............................
Supervisory, regulatory, and legal services .............
Federal Reserve System policy direction ................
Support and security services..................................
Extraordinary items.................................................

129.5
173.2
52.6
171.9
10.0

129.5
172.0
51.6
172.1
9.4

143.1
206.4
55.6
195.4
9.0

46.6
46.7
49.6
46.4
10.1

Total, Board operations .......................................

537.2

534.6

609.5

46.3

Total, capital ..........................................................

34.0

31.3

31.4

28.0

Ofﬁce of Inspector General .....................................

8.5

8.1

10.2

43.5

Note: Components may not sum to totals and may not
yield percentages shown because of rounding.

Table 2.2
Positions Authorized at the Board of Governors for Operational Areas, Extraordinary Items,
and the Ofﬁce of Inspector General, 2004–07
Operational area or
Ofﬁce of Inspector General

2004–05
(initial)

2004–05
(ending)

2006–07
(initial)

Monetary and economic policy ................................
Supervisory, regulatory, and legal services ..............
Federal Reserve System policy direction .................
Support and security services1 .................................
Extraordinary items..................................................

459
540
172
724
...

465
562
172
759
...

466
567
173
770
...

467
573
174
788
...

Total, Board operations .........................................

1,895

1,958

1,976

2,002

Ofﬁce of Inspector General ......................................

1. Includes summer interns and youth positions and
positions that support the Federal Financial Institutions
Examination Council for processing data collected under

2006–07
(midbiennial)

the Home Mortgage Disclosure Act and the Community
Reinvestment Act.

Board of Governors

positions increased by twenty-six, bring
ing the total to 2,002 positions. These new
positions were necessitated by increases
in staff workload, including work related
to the Board’s compliance with the Feder
al Information Security Management Act
(FISMA) and its voluntary compliance
with the principles of the Sarbanes-Oxley
Act. The largest single increase was in
the Division of Information Technology,
which added ten new positions, eight of
which were for FISMA-related work.
The Management Division added eight
new positions, five of which were to
assist with FISMA and human resources
compliance efforts.

Ofﬁce of Inspector General
In keeping with its statutory indepen
dence, the Ofﬁce of Inspector General
(OIG) prepares its proposed budget apart
from the Board’s budget and presents it
directly to the Chairman of the Board for
the Board’s consideration. The 2006–07
OIG budget is $10.2 million. In 2006,
estimated expenses were $4.5 million, or
43.5 percent of the two-year budget. The
number of authorized positions in the OIG
remained unchanged at thirty-six.

Areas of Risk
Despite a careful and coordinated plan
ning effort, future developments, such
as the following, could require resources
beyond what is currently approved:
• a higher-than-expected rate of increase
in health insurance costs
• changes to turnover assumptions due
to demographics and the estimated
salaries of successors
• pressure in key areas requiring addi
tional salary or benefit packages
in order for the Board to remain
competitive
• signiﬁcant changes in or shocks to the
economy or ﬁnancial system that cre
ate a material increase in workload
• terrorist activity requiring addi
tional security and contingency
enhancements
• increased workload created by laws or
decisions to expand or modify central
bank operations
• changes to the position-vacancy-rate
assumptions used in developing the
salary budget and a need for additional
ofﬁce space if the staff increases.

Federal Reserve Banks 15

Chapter 3

Federal Reserve Banks
The 2007 operating budgets of the twelve
Reserve Banks total $2,953.3 million.1
The 2007 total is $153.2 million, or
5.5 percent, above estimated 2006 ex
penses. This increase is largely the result
of increases in the Treasury, information
security, protection, and check areas.
These increases are offset slightly by
reductions in the cash function.
Nearly half of Reserve Bank expenses
in the 2007 budget are offset by revenues
from priced services (33 percent) and
reimbursable claims for services pro
vided to the Treasury and other agencies
(16 percent).2 Budgeted 2007 revenue is
1. These expenses include those budgeted by
Federal Reserve Information Technology (FRIT)
and the Ofﬁce of Employee Beneﬁts (OEB) that are
chargeable to the Reserve Banks.
2. Reimbursable claims include costs of ﬁscal
agency and depository services provided to the U.S.
Treasury, other government agencies, and other ﬁs
cal principals that are billed to these agencies.

lower than the 2006 estimated level, pri
marily as a result of declining check vol
ume. Reimbursable claims will increase
8.6 percent in 2007, reﬂecting additional
efforts by the Reserve Banks on behalf of
the Treasury. (See table 3.1.)
Total 2007 projected average number of
personnel (ANP) for the Reserve Banks,
FRIT, and OEB is 19,828, a decrease of
57 ANP, or 0.3 percent, from 2006 esti
mated staff levels (table 3.2).3 The 2007
stafﬁng decrease continues the trend of
workforce reductions that began in the late
1990s. The 2007 budgeted staff reduction
reﬂects the effect of infrastructure changes
and volume declines in check operations

3. ANP is the average number of employees
in terms of full-time positions for the period. For
instance, a full-time employee who works one-half
of the year counts as 0.5 ANP for that calendar year;
two half-time employees who work the full year
count as 1 ANP.

Table 3.1
Expenses of the Federal Reserve Banks, Net of Receipts and Claims for Reimbursement,
2006 and 2007
Millions of dollars except as noted
Change

2006
(estimated)

2007
(budgeted)

Operations .............................................................................

2,800.1

2,953.3

153.2

5.5

Less
Revenue from priced services ...........................................
Other income.....................................................................
Claims for reimbursement1 ...............................................

1,027.7
1.2
430.1

981.3
1.5
466.7

–46.4
0.3
36.6

–4.5
28.3
8.6

Equals
Net expenses ....................................................................

1,341.1

1,503.8

162.6

12.1

Item

Note: Excludes capital outlays. Includes expenses
budgeted by FRIT and OEB. Expenses from these entities
have been charged to the Reserve Banks, as appropriate,
and included in their budgets. Components may not sum
to totals and may not yield percentages shown because
of rounding.

Amount

Percent

Operating expenses reﬂect all redistributions for support
and allocations for overhead.
1. Costs of fiscal agency and depository services
provided to the U.S. Treasury, other government agen
cies, and other ﬁscal principals that are billed to these
agencies.

Annual Report: Budget Review, 2007

and efﬁciency gains in currency process
ing, offset slightly by increases in other
areas such as information technology,
Treasury, and protection.

2006 Budget Performance
Total 2006 expenses are estimated to
be $2,800.1 million, which represents
an increase of $13.8 million, or 0.5 per
cent, from the approved 2006 budget of
$2,786.3 million. Total 2006 estimated
staffing of 19,885 ANP represents an
increase of 17 ANP from 2006 budgeted
levels. The expense increase from budget
is primarily due to higher costs ($8.5
million) to support the New Treasury
Auction Automated Processing System
(NTAAPS).
Also contributing to the overrun are
higher expenses in check operations
for staffing, supplies, and equipment
related to higher-than-budgeted Check
21 volumes, higher fuel costs for check
transportation, and additional staff for
consolidation of check-adjustments and
check-processing operations ($8.3 million
and 203 ANP). Additional costs in several
support areas, including increased utili
ties and property depreciation expense,
and higher overtime in the protection
area, increase expenses by $5.6 million.
Other increases to the budget for the
current year include additional costs for

overtime and travel in the supervision and
regulation function ($5.4 million) and
higher equipment costs in cash operations
($2.5 million).
Partially offsetting these increases are
lower costs in several Treasury initia
tives. Expenses for the Treasury Web
Application Infrastructure (TWAI) are
$6.7 million below budget because of
delayed or suspended application devel
opment efforts. In several other Treasury
applications, expenses are $2.5 million
lower and staffing is 35 ANP lower
because of changes in project scope and
development efforts—changes made at
the request of the Treasury. In addition,
unfilled positions in public programs
reduce the estimate $1.3 million and
25 ANP. In support areas, stafﬁng levels
are decreasing 58 ANP because of turn
over and hiring delays, primarily in facili
ties and protection. In cash operations,
stafﬁng levels are decreasing 40 ANP,
reﬂecting increased efﬁciencies, volume
declines, and hiring delays.

Factors Affecting the 2007 Budget
For 2007, the Reserve Banks’ budgets
reﬂect funding for several initiatives that
will enhance information security, expand
economic outreach, and improve Treasury
applications. The 2007 budget also sup
ports Reserve Banks’ efforts to increase

Table 3.2
Employment at the Federal Reserve Banks, FRIT, and OEB, 2006 and 2007
Average number of personnel except as noted
2006
(estimated)

2007
(budgeted)

Reserve Banks .......................................................................
Federal Reserve Information Technology .............................
Ofﬁce of Employee Beneﬁts .................................................

19,063
780
42

Total .....................................................................................

19,885

Item

Note: Components may not sum to totals and may not
yield percentages shown because of rounding. See text note
3 for deﬁnition of average number of personnel.

Change
Amount

Percent

18,990
793
45

–73
13
3

–0.4
1.7
7.1

19,828

–57

–0.3

Federal Reserve Banks 17

efﬁciency and reduce costs and includes
funding of several initiatives to improve
long-term operational efﬁciencies in both
cash and check operations.

Central Bank Services
In the central bank area—which includes
monetary policy, public programs, super
vision and regulation, and cash opera
tions—expenses are increasing $94.1
million, or 5.9 percent, in 2007. Total
costs for monetary policy and economic
research are increasing $21.0 million, or
6.5 percent. Stafﬁng levels are increasing
10 ANP, in part because of the full-year
effect of several Banks’ efforts initiated
in 2006. Expenses in public programs are
increasing $15.8 million, or 10.7 percent,
and stafﬁng levels are increasing 32 ANP.
During 2007, Reserve Banks will focus
resources on regional outreach expansion,
economic education, and ﬁnancial literacy
efforts. In recent years, Reserve Banks
have devoted more resources to these
efforts, particularly in regions where there
is a limited Reserve Bank presence.
Expenses in the supervision and regula
tion area are increasing $45.4 million, or
8.2 percent, in the 2007 budget as a result
of the full-year effect of 2006 hires and
higher compensation for current staff.
Stafﬁng levels are increasing 18 ANP.
Expenses in cash operations are
increasing $0.9 million, or 0.2 percent.
The relatively ﬂat cost in this area reﬂects
several factors—including lower costs
for cash-processing equipment main
tenance, projected recoveries from the
recirculation policy, and productivity
improvements—that together account for
$5.0 million.4 The recognition in 2006
of $2.2 million in one-time costs to
4. Under the new recirculation policy, the
Reserve Banks will charge depository institutions
a fee to deposit large amounts of ﬁt $10 and $20
notes and order the same denomination within the
same week.

restructure currency operations across
Reserve Banks also reduces the 2007
budget. These reductions to the cash
budget largely offset the area’s compen
sation program ($7.7 million) and other
initiatives, including expenses and staff to
prepare for a new cash automation plat
form ($1.0 million and 8 ANP) and several
long-term initiatives under way in the cash
area ($1.2 million and 5 ANP).

Treasury-Related Functions
Total costs to provide services to the
Treasury are increasing $33.7 million, or
8.2 percent. Stafﬁng levels are increasing
19 ANP. The increase is driven by growth
in two software applications maintained
for the Treasury. Costs for developing
and implementing NTAAPS are increas
ing $10.1 million and 4 ANP. The TWAI
project, which provides a dedicated
web environment that supports several
Treasury applications and millions of
registered users, continues to grow as new
applications are added. The 2007 budget
includes an increase of $10.1 million for
additional applications to be added to the
TWAI environment.
Growth in other Treasury applications
accounts for increases of $3.0 million and
14 ANP. These applications include the
Government-wide Accounting (GWA)
program and International Treasury
Services (ITS), ongoing development
of the Treasury’s General Account
Deposit Reporting Network (TGANet)
application, and software to process
government electronic payments (eGov
ernment). These increases are partially
offset by the transfer of the Transaction
Reporting System to a private company
($4.9 million).

Check Services
Total expenses for check services are
increasing $11.0 million, or 1.7 percent,

Annual Report: Budget Review, 2007

reflecting higher costs for Check 21–
related supplies and equipment, as well
as additional resources necessary to
facilitate further consolidation into ﬁve
regional check-adjustments sites. The
2007 budget also includes additional
funding for several check initiatives,
including further restructuring of check
operations.
These reductions are offset slightly
by the full-year effect of check-processing infrastructure changes in 2006 and
additional changes planned for 2007,
declining paper-check volume, and fewer
check-adjustments staff in nonregional
sites. These reductions result in a decrease
of 347 ANP.

Support Services
Support costs are increasing $46.7
million, or 5.8 percent. The increase
is primarily due to additional costs for
information security and protection.
Expenses for information technology
are increasing $15.8 million, primarily
for security and infrastructure-related
initiatives to upgrade and enhance secuity throughout the System. Protection
costs are increasing $8.7 million and 18
ANP, reﬂecting personnel costs related to
ﬁlling open positions and higher depreiation expense for physical security
projects.

to fund salary administration programs for
ofﬁcers and employees.5 These expenses
are offset primarily by reductions of
$17.5 million in severance payments
and outside agency expenses. Reserve
Bank average merit pools are budgeted
at 4.0 percent for ofﬁcers and employees,
slightly higher than in 2006.
Variable pay programs are increasing
$10.0 million in 2007. In total, incentive
payments make up slightly more than 60
percent of the total variable pay program.
Banks plan to use these additional funds
to address market pressures and retain
highly skilled staff in speciﬁc areas of
the Bank.
Of the projected 2,165 ANP leaving
the Reserve Banks, FRIT, and OEB
in 2007, an estimated 17 percent will
not be replaced, primarily because of
planned staff reductions associated with
check infrastructure changes and antici
pated lower check volumes. Turnover
in 2007 is expected to be lower than
the turnover of 2,356 ANP in 2006, in
large part because of efforts to retain
staff in critical areas and lower stafﬁng
reductions associated with reengineering
efforts.
Retirement and other beneﬁt expenses
are anticipated to increase by approximately $61.8 million, or 14.7 percent,
in 2007. This increase is primarily
attributable to a $40.3 million one-time
adjustment in post-retirement medical
beneﬁts.

2007 Personnel Expenses
Budgeted officer and employee sala ries and other personnel expenses total
$1.5 billion, which is 4.7 percent higher
than the 2006 estimate. This includes an
increase of $78.3 million, or 5.3 percent,
5. Salary administration represents the budgeted
funds that are available to increase compensation
to ofﬁcers and employees in the upcoming year. It
does not include adjustments for changes in stafﬁng
levels and composition, turnover and lag in hiring,
overtime, severance, and outside agency expense.

Risks in the 2007 Budget
The projected declines in paper-check
items processed, the rapid increase in
Check 21 volumes, changes in the planned
restructuring of check operations, and
variances in assumptions concerning
check transportation pose risks to the
budget in 2007. In addition, several Banks
cited the implementation of the cash
recirculation policy, and its effects on
volumes and recoveries, as a budget risk.

Federal Reserve Banks 19

Changes in the scope or direction of the
various Treasury projects and continued
unbudgeted Treasury requests also pose a
risk for the Banks in 2007. Finally, Banks
cite possible shortfalls in the budgeted
recoveries associated with tenant rental
income as a risk.
The check service continues to be
an area where Banks have identiﬁed a
considerable amount of risk. Volumes
are projected to decline 9.6 percent in
2007, reﬂecting the continued decline of
legacy paper items and the rapid growth of
Check 21 items. If the budgeted decrease
in legacy paper volumes fails to materi
alize, the Banks would incur costs for
higher-than-planned stafﬁng levels. The
continued rapid growth of Check 21 items
could present operational challenges and,
if the adoption of Fed Receipt—a service
in which the paying bank agrees to the
electronic receipt of Check 21 items—is
slower than anticipated, the Banks would
require additional stafﬁng, equipment,
and supplies beyond those budgeted.
Phase IV of the check consolidations
has been announced, but ﬁnal dates for
the four consolidations have not yet been
ﬁnalized. Although the Retail Payments
Office budgeted for restructuring and
other check initiatives in the 2007 budget,
additional funding may be required if con
solidation and transportation assumptions
vary signiﬁcantly from plan.
The implementation of the new cur
rency recirculation policy and the Future
Cash Automation software development
effort pose signiﬁcant risks for the 2007
budget. The fee component of the new
currency recirculation policy is scheduled
for implementation in mid-2007. Bud
geted assumptions may vary depending on
how aggressively cash customers adjust
their currency usage and practices to avoid
these fees. Costs associated with imple
mentation of the Presidential Dollar Coin
Act have also been identiﬁed as a risk.
As in the past, unforeseen requests
from the Treasury or changes in scope
and direction would add costs and could

require additional resources in 2007.
In addition, the Treasury’s plans for
reengineering its collection and cash
management processes and systems are
not yet fully deﬁned. The effect of this
initiative has not been factored into Bank
budgets.
In addition, many Banks are facing
the retirement of a signiﬁcant number
of ofﬁcers within the next several years.
Several Banks have identiﬁed succession
planning and retention as a high-priority
objective and have programs under way
to address this issue.

2007 Capital Plan
The 2007 capital budget submitted by the
Reserve Banks, FRIT, and OEB totals
$591.6 million—a $139.9 million, or
31 percent, increase from the 2006
estimated levels. The increase from the
2006 estimate is primarily from projected
outlays in 2007 for Kansas City’s new
headquarters building.
As in previous years, the 2007 capital
budget includes funding for projects that
support the strategic direction outlined in
the individual Reserve Bank and System
plans. These strategies focus on investing
to improve operational efﬁciencies and
services to Bank customers and provid
ing a safe and quality work environment.
In support of these strategies, the 2007
budget identifies six major categories
of capital outlays: building projects and
facility improvements, security enhance
ments, automation and communication
initiatives, payment system improve
ments, cash services initiatives, and
Treasury initiatives.
The proposed capital budget includes
$314.5 million for building-related proj
ects and facility improvements. The total
includes $140.3 million in outlays for the
Kansas City new-building project and
$23.1 million for the Seattle new-build
ing project. In addition, the St. Louis
capital budget includes $38.8 million for

Annual Report: Budget Review, 2007

expansion and enhancement of its head
ofﬁce, and New York’s budget includes
$35.3 million for projects in the Bank’s
main building and at the East Rutherford
Operations Center.
Another $126.4 million is included for
initiatives related to payment systems,
cash, and Treasury initiatives. Payment
system initiatives account for $61.6 mil
lion and consist mainly of capital needed
to support the rapid growth in Check 21
volume. The budget includes $39.7 mil
lion for Treasury initiatives—primarily
TWAI, NTAAPS, and e-Government ini
tiatives. In addition, the budget includes
outlays of $25.2 million for various cash
initiatives.

The Reserve Banks, FRIT, and OEB
included $76.1 million in funding for
major automation and communication
initiatives. These initiatives do not include
the automation components of building or
payment systems initiatives discussed pre
viously. Of the total automation-related
outlays, FRIT projects and acquisitions
account for $28.2 million. The New York
budget includes $18.9 million for routine
replacement of server equipment, PBX
telephone equipment, and other network
equipment. The budget also includes
$69.4 million for security enhance
ments in support of Reserve Banks’objec
tives to comply with System security
standards.

Appendixes

Federal Reserve Budget Process 23

Appendix A

Federal Reserve Budget Processes
This appendix is an overview of the
separate budgets and budgeting processes
followed by the Board of Governors and
the Reserve Banks.

get apart from the Board’s budget. The
OIG presents its two-year budget directly
to the Chairman for action by the Board.

Reserve Banks
Board of Governors
The Board’s budget covers a two-year
period. Following is a summary of the
budget process:
• The Board’s divisions examine their
operating environments and consider
whether any adjustments to their mis
sion, priorities, activities, and associ
ated resources might improve the efﬁ
ciency and effectiveness of the Board’s
operations. Individual division budget
objectives are prepared on the basis
of Boardwide priorities and planning
assumptions.
• The divisions give the results to the
Staff Planning Group (SPG), a group
composed of senior-level officers,
which develops a preliminary budget
objective. The Board’s Committee
on Board Affairs (CBA) reviews
the preliminary budget objective,
clariﬁes outstanding planning issues
with senior ofﬁcials, and submits the
budget objective to the Board for its
consideration.
• Once approved, the divisions use the
budget objective to prepare their bud
gets, which are combined to form a
budget for the entire Board. The CBA,
under authority delegated by the Chair
man, oversees this process.
• The CBA presents the budget to the
Board for approval.
The Board’s Ofﬁce of Inspector Gen
eral (OIG), in keeping with its statutory
independence, prepares its proposed bud

Each year, the Federal Reserve Banks
establish major operating goals for the
coming year, devise strategies to attain
those goals, estimate required resources,
and monitor results. The Banks’ budgets
are structured by operational area, with
support and overhead attributable to each
area charged to that area.
The operations and financial per
formance of the Reserve Banks are
monitored throughout the year through a
cost-accounting system, the Planning and
Control System (PACS). Under PACS,
the costs of all Reserve Bank services,
both priced and nonpriced, are grouped
by operational area, and the associated
costs of support and overhead are charged
to these areas accordingly. PACS makes it
possible to compare budgets with actual
expenses and facilitates comparison of
the ﬁnancial and operating performances
of the Reserve Banks. During the budget
year, the Banks must submit proposals for
major purchases of assets to the Board for
further review and approval.
Following is a summary of the budget
process:
• The business leaders in each functional
area develop their budget guidance.
This information is used to develop
a preliminary budget projection,
called the Reserve Bank budget
outlook. Each Bank then develops
its own budget using the businessleader guidance.
• The Committee on Federal Reserve
Bank Affairs at the board then reviews

Annual Report: Budget Review, 2007

the budgets, both individually and in
the context of Systemwide issues and
the plans of the other Banks.
• The budgets are then presented to the
Board of Governors for ﬁnal action.

Priced Services 25

Appendix B

Priced Services
The Monetary Control Act of 1980
requires the Federal Reserve to charge
depository institutions for certain services
that the Federal Reserve had previously
provided without explicit charge and only
to member banks. As the act requires, the
fees charged for providing these priced
services are set to recover, over the long
run, all direct and indirect costs of pro
viding the services plus imputed costs,
including the interest on items credited
before actual collection (ﬂoat) and the
private-sector adjustment factor (PSAF).
To calculate the PSAF, the Federal
Reserve Banks impute the costs that
would have been incurred, such as taxes
that would have been paid, and the prof
its that would have been earned (return
on equity) had the priced services been
provided by a private business ﬁrm. Table
B.1 provides details on projected revenue
from priced services.

Annual Pricing Process
To meet the requirement for the full recov
ery of costs over the long run, the Federal
Table B.1
Revenue from Priced Services, 2005–07
Millions of dollars
Service

2005
2006
2007
(actual) (estimated) (budgeted)

Funds transfers and
net settlement .........
Automated
clearinghouse .........
Commercial checks ....
Book-entry securities
transfers ..................
Noncash collection1....

67.3

71.3

72.7

87.4
817.5

89.7
844.9

99.9
785.5

21.3
1.2

21.8
0.0

23.3
0.0

Total...........................

994.7

1,027.7

981.3

1. The Reserve Banks withdrew from the noncash col
lection service at year-end 2005.

Reserve has developed an annual pricing
process that involves projecting Reserve
Bank expenses, volumes, and revenues,
as well as the PSAF and net income on
clearing balances, for each major service
category. Fees for Federal Reserve ser
vices must be approved by the product
director for the respective service, by the
Reserve Banks’ Financial Services Policy
Committee (FSPC), and ultimately by the
Board of Governors.1
The cost of ﬂoat is projected by apply
ing the federal funds rate to an estimate
of the level of ﬂoat to be generated in
the coming year. Beginning in 2006, the
PSAF targeted return on equity (ROE)
capital is based on a simple capital asset
pricing model using data from the equity
market as a whole.2 The ROE is applied
to the level of priced-services equity that
is imputed to ﬁnance the assets the Federal
Reserve expects to use in providing priced
services in the coming year. Estimates of
income taxes are based on the tax rates
derived from the ﬁnancial data of the ﬁfty
largest U.S. bank holding companies by
deposit balance.
The other components of the PSAF are
derived from the budgets of the Reserve
Banks and the Board: the imputed sales
tax (based on budgeted outlays for mate
rials, supplies, and capital); the imputed
assessment for insurance by the Federal
Deposit Insurance Corporation (based on
expected clearing balances and amounts
deferred to depository institutions for
1. The product directors are the ﬁrst vice presi
dents at selected Reserve Banks with responsibil
ity for day-to-day policy guidance over speciﬁc
services. The FSPC is responsible for the overall
direction of financial services for the Federal
Reserve Banks.
2. In 2005, the ROE was based on the average
return on equity results of three economic models
that used bank holding company data.

Annual Report: Budget Review, 2007

items deposited for collection with the
Reserve Banks); and the portion of the
expenses of the Board of Governors
directly related to providing priced
services.
Investment income is imputed and net
ted with related direct costs associated
with clearing balances to estimate net
income on clearing balances.

Currency Budget 27

Appendix C

Currency Budget
Federal Reserve Banks issue new and ﬁt
currency to the public through depository
institutions and destroy currency already
in circulation as it becomes unﬁt or when
a new design is issued. Each year, under
authority delegated by the Board, the
director of the Division of Reserve Bank
Operations and Payment Systems orders
new currency from the U.S. Department
of Treasury’s Bureau of Engraving and
Printing (BEP). Upon reviewing the
order, the BEP establishes billing rates
for new currency, which the Board staff
uses to prepare the annual budget for
new currency. Once the Board approves
the new currency budget, it assesses
each Federal Reserve Bank through an
accounting procedure similar to that used
in assessing the Banks for the Board’s
operating expenses.
Total 2006 expenses for new currency
were under budget by $5.6 million, or
1.1 percent, primarily because of lowerthan-expected printing costs, but also
because of lower transportation costs. The
proposed $597.8 million 2007 budget for
new currency is 22.3 percent higher than
the 2006 estimate (chart C.1). Printing
costs for Federal Reserve notes represent
96.1 percent of the new currency budget,
and expenses for currency transporta-

Chart C.1
Federal Reserve Budget for New Currency,
1997–2007
Millions of dollars

600
500
400
300
200
100
1997

2000

2003

2006

Note: For 2007, budgeted.

tion, counterfeit-deterrence research,
and Treasury’s Ofﬁce of Currency Stan
dards (OCS) account for the remaining
3.9 percent (table C.1).

Printing of Federal Reserve Notes
The currency ordered for the 2007 calen
dar year will cost $574.3 million to print,
a 23.0 percent increase over the estimated
cost for 2006. The 2007 printing costs
reflect increases in BEP billing rates,
the aggregate volume of notes in the
print order, and the proportion of high-

Table C.1
Federal Reserve Budget for New Currency, 2006 and 2007
Thousands of dollars, except as noted
Item

2006

2007
(budgeted)

Percent
change

Printing of new Federal Resereve notes .........................................................
Currency transportation .................................................................................
Counterfeit-deterrence research .....................................................................
Reimbursement to the U.S. Treasury’s Ofﬁce of Currency Standards...........

467,067
14,769
3,290
3,600

574,284
16,333
3,405
3,750

23.0
10.6
3.5
4.2

Total cost of currency ..................................................................................

488,726

597,772

22.3

Annual Report: Budget Review, 2007

Table C.2
Projected Federal Reserve Costs of Printing New Notes, by Type of Note, 2007
Type of currency

Number of
notes
(millions)

Unthreaded ($1, $2) ...................................

4,097.7

New Currency Design
($5).........................................................
($100) .....................................................
Series 2004 ($10, $20, $50) .......................
Volume-weighted average cost ..................
Total ..........................................................

Cost per
thousand notes
(dollars)

Total cost
(thousands of
dollars)

44.6

44.54

182,513

1,222.8
1,213.1
2,644.0

13.3
13.2
28.8

61.92
78.52
83.51
62.57

75,716
95,255
220,800

9,177.7

100.0

denomination notes. The key factors con
tributing to the higher 2007 billing rates
are (1) the BEP capital plan, (2) a new
contract for currency paper, and (3) public
education expenses. It is expected that the
2007 calendar year BEP note order will be
8.5 percent higher than the 2006 estimate.
Staff is working with the BEP to smooth
out currency print orders over the next
several years, in anticipation of an expect
ed high demand for the newly designed
$100 note, which will be released in 2009.
The 2007 print budget is also higher
than estimated 2006 expenses because it
contains a larger share of more-expensive
high-denomination notes than the 2006
note order did. Forty-two percent of the
2007 note order consisted of $10 through
$100 notes, compared with 31 percent of
the 2006 order (table C.2).

Currency Transportation
The 2007 currency transportation bud
get is $16.3 million, which includes the
costs of shipping new currency from the
BEP to Reserve Banks, shipping ﬁt and
unprocessed currency within the System,
and returning currency pallets to the BEP.
Of the $16.3 million in the 2007 budget
for currency transportation, $11.2 mil
lion is for shipments of new currency
from the BEP and $5.0 million is for
intra-System shipments. These amounts

Percentage of
total notes

574,284

are, respectively, 10.3 percent and
11.3 percent higher than 2006 estimated
expenses. In 2007, the Board will enter
into a new two-year contract with armored
carriers for BEP currency shipments.
Based on the renegotiated contracts, the
billing rates will increase an average of
9.2 percent over the previous two-year
contract rates.
The 2007 budget for intra-System
shipments includes $600 thousand for
shipping unprocessed $1 notes between
Reserve Banks, under a new program for
using the System’s high-speed processing
capacity more effectively. The cost of
transportation and high-speed process
ing of unprocessed currency is expected
to be lower than the cost of printing
and shipping new notes from the BEP.
Without this program, the 2007 budget
for intra-System shipments would be
relatively unchanged from 2006 estimated
expenses. The 2007 budget for returning
currency pallets from Reserve Banks to
the BEP is unchanged from the 2006
estimate of $42 thousand.

Counterfeit-Deterrence Research
The 2007 budget for counterfeitdeterrence research is $3.4 million,
which includes costs associated with the
Central Bank Counterfeit Deterrence
Group (CBCDG) and the Reprographic

Currency Budget 29

Research Center (RRC). The CBCDG
operates under the auspices of the G-10
central bank governors to combat digital
counterfeiting and includes 27 central
banks. The Board’s $3.4 million share
of the 2007 CBCDG budget constitutes
99 percent of the Federal Reserve’s
counterfeit-deterrence budget and is
2.9 percent higher than the 2006 estimate.
The RRC payment of $35 thousand rep
resents the remaining 1 percent of the
counterfeit-deterrence research budget.
The RRC is a state-of-the-art facility
hosted by the National Bank of Denmark
that 12 member central banks use for
adversarial testing of banknote designs
and counterfeit-deterrence features.

Treasury’s
Ofﬁce of Currency Standards
The 2007 budget to reimburse the U.S.
Department of the Treasury for OCS
expenses is $3.8 million. The OCS
develops Reserve Bank standards for
cancellation and destruction of unﬁt cur
rency and for note accountability, and it
reviews Reserve Bank cash operations for
compliance with its standards. As a public
service, the OCS also processes claims for
the redemption of damaged or mutilated
currency.

Board Expenses and Employment 31

Appendix D

Expenses and Employment
at the Board of Governors
Table D.1
Expenses of the Board of Governors by Division, Ofﬁce, or Special Account, 2004–2007
Millions of dollars, except as noted

Division, ofﬁce, or special account

2004–05
(budgeted)

2004–05
(actuals)

2006–07
(budgeted)

2006
(actuals)

2006 actual
expenses as
a percent of
the 2006–07
budget

Board Members.......................................
Secretary .................................................
Staff Director for Management ...............
Research and Statistics............................
International Finance ..............................
Monetary Affairs .....................................
Banking Supervision and Regulation......
Consumer and Community Affairs .........
Legal .......................................................
Reserve Bank Operations
and Payment Systems ....................
Information Technology ..........................
Management Division .............................
IRM income account ..............................
Residual retirement .................................
Special projects .......................................
Extraordinary items.................................

25.0
11.5
16.2
76.0
28.7
24.9
86.0
25.0
23.8

23.6
11.1
16.8
76.4
28.5
24.6
87.6
24.2
22.6

26.4
12.4
16.8
82.7
32.0
28.4
99.4
29.5
26.1

12.1
6.1
9.4
38.9
14.3
13.6
47.3
13.8
10.9

5.8
49.3
55.8
47.0
44.6
47.8
47.6
46.8
41.9

38.3
82.5
109.8
–38.0
9.6
8.1
10.0

37.7
81.6
109.4
–38.0
7.9
11.1
9.4

51.4
91.2
122.2
–39.8
9.8
12.0
9.0

24.3
42.4
59.8
–20.3
5.8
3.2
0.9

47.4
46.5
48.9
51.1
59.5
25.6
10.1

Total, Board operations ........................

537.2

534.6

609.5

282.5

46.3

Ofﬁce of Inspector General .....................

8.5

8.1

10.2

4.5

43.5

NOTE: Components may not sum to totals and may not
yield percentages shown because of rounding.

Annual Report: Budget Review, 2007

Table D.2
Expenses of the Board of Governors by Account Classiﬁcation, 2004–2007
Millions of dollars, except as noted

Account classiﬁcation

Personnel services
Salaries ...................................................
Retirement ..............................................
Insurance ................................................
Subtotal ..............................................

2004–05
(budgeted)

2004–05
(actuals)

2006–07
(budgeted)

2006
(actuals)

2006 actual
expenses as a
percent of the
2006–07
budget

333.7
32.6
29.3
395.6

332.0
33.5
27.8
393.3

380.2
35.7
31.4
447.3

177.5
18.3
16.7
212.4

46.7
51.2
53.2
47.5

14.9
1.0
10.0
2.9
1.7
2.4
14.1
7.7
0.7
2.0
6.5
5.8
2.3

14.7
0.9
10.1
2.5
1.5
2.8
12.3
7.7
0.6
1.7
7.2
5.2
2.2

15.7
1.0
10.8
2.7
1.2
2.3
14.6
7.5
1.2
2.0
7.8
4.6
2.5

8.7
0.5
4.7
1.1
0.4
1.2
6.6
2.0
0.4
0.9
4.5
1.6
1.0

55.5
50.0
43.3
41.0
30.8
50.3
44.8
26.6
36.6
44.2
57.8
35.0
40.7

Goods and services
Travel .....................................................
Postage and shipping..............................
Telecommunications ..............................
Printing and binding...............................
Publications ............................................
Stationery and supplies ..........................
Software .................................................
Furniture and equipment ........................
Rentals....................................................
Books and subscriptions ........................
Utilities...................................................
Building repairs and alterations .............
Furniture repairs and maintenance .........
Contingency Processing Center
expenses .........................................
Contractual professional services ..........
Tuition/registration and membership
fees .................................................
Subsidies and contributions ...................
Depreciation ...........................................
Cafeteria .................................................
All other1 ................................................
Subtotal ..............................................

1.3
41.2

1.7
40.0

1.7
62.8

1.1
23.4

64.0
37.2

4.4
1.3
24.8
0.0
–13.2
131.7

4.5
1.3
25.4
0.0
–10.3
131.9

4.8
1.3
28.8
0.0
–11.4
162.2

2.6
0.7
13.0
0.0
–4.3
69.9

54.0
52.8
45.2
...
38.1
43.1

Total, Board operations .......................

527.2

525.2

609.5

282.5

46.3

Ofﬁce of Inspector General ....................

8.5

8.1

10.2

4.5

43.5

NOTE: Components may not sum to totals and may not
yield percentages shown because of rounding.

1. All other includes, among other items, Accounts,
Risk and Credit (ARC) System expenses and income; IRM
income and user charges; and interest expenses.
. . . Not applicable.

Board Expenses and Employment 33
Table D.3
Positions Authorized at the Board of Governors, by Division, Ofﬁce, or Special Account,
2004–071
Division, ofﬁce, or special account

2004–05
(initial)

2004–05
(ending)

2006–07
(initial)

2006–07
(midbiennial)

Board Members...............................................................
Secretary .........................................................................
Staff Director for Management .......................................
Research and Statistics....................................................
International Finance ......................................................
Monetary Affairs .............................................................
Banking Supervision and Regulation..............................
Consumer and Community Affairs .................................
Legal ...............................................................................
Reserve Bank Operations and Payment Systems............
Information Technology2 ...............................................
Management Division3 ....................................................
Special projects ...............................................................

78
50
44
275
116
68
238
83
80
139
289
434
1

77
50
45
275
116
74
254
89
80
139
301
458
0

78
50
45
275
116
75
254
94
80
139
301
469
0

79
50
45
275
116
76
257
97
80
139
311
477
0

Total, Board operations ................................................

1,895

1,958

1,976

2,002

Ofﬁce of Inspector General .............................................

1. Includes only those divisions, ofﬁces, and special
accounts that have authorized position counts.
2. Includes positions that support the Federal Financial
Institutions Examination Council for processing data col-

lected under the Home Mortgage Disclosure Act and the
Community Reinvestment Act.
3. Includes summer interns and youth positions.

Bank Expenses and Employment 35

Appendix E

Expenses and Employment
at the Federal Reserve Banks
Table E.1
Operating Expenses of the Federal Reserve Banks, by District, 2006 and 2007
Thousands of dollars except as noted
Percent change
District

2006
(budgeted)

2006
(estimated)

2007
(budgeted)

2006 estimated
compared with
2006 budgeted

2007 budgeted
compared with
2006 estimated

Boston .............................
New York ........................
Philadelphia.....................
Cleveland ........................
Richmond ........................
Atlanta .............................
Chicago ...........................
St. Louis ..........................
Minneapolis.....................
Kansas City .....................
Dallas ..............................
San Francisco ..................

156,366
531,652
136,874
193,910
208,758
336,118
246,141
220,140
148,999
164,182
183,129
260,030

152,172
542,003
138,019
196,821
214,274
315,114
243,524
214,749
153,816
172,464
195,407
261,787

151,625
573,662
147,732
208,644
231,262
337,336
274,162
229,623
159,786
173,175
186,662
279,662

–2.7
1.9
0.8
1.5
2.6
–6.2
–1.1
–2.4
3.2
5.0
6.7
0.7

–0.4
5.8
7.0
6.0
7.9
7.1
12.6
6.9
3.9
0.4
–4.5
6.8

Total ...............................

2,786,299

2,800,148

2,953,331

0.5

5.5

NOTE: Excludes capital outlays. Includes expenses
budgeted by Federal Reserve Information Technology
(FRIT) and the System’s Ofﬁce of Employee Beneﬁts
(OEB).

Components may not sum to totals and may not yield
percentages shown because of rounding.
Operating expenses reﬂect all redistributions for support
and allocations for overhead.

Annual Report: Budget Review, 2007

Table E.2
Employment at the Federal Reserve Banks, by District, and at FRIT and OEB,
2006 and 2007
Average number of personnel except as noted
Amount change
2006
(estimated)

District

2006
(budgeted)

Boston ..........................................
New York .....................................
Philadelphia..................................
Cleveland .....................................
Richmond .....................................
Atlanta ..........................................
Chicago ........................................
St. Louis .......................................
Minneapolis..................................
Kansas City ..................................
Dallas ...........................................
San Francisco ...............................

1,041
2,978
1,078
1,597
1,847
2,033
1,534
1,150
1,287
1,344
1,315
1,866

1,015
2,940
1,062
1,570
1,838
2,075
1,531
1,132
1,287
1,373
1,379
1,862

993
2,868
1,092
1,604
1,854
2,042
1,544
1,124
1,273
1,386
1,331
1,879

–25
–38
–16
–27
–8
42
–3
–18
0
29
64
–4

–22
–72
30
34
16
–32
13
–8
–14
13
–47
17

Total, all Districts ......................

19,069

19,063

18,990

–5

–73

Federal Reserve Information
Technology ...........................
Ofﬁce of Employee Beneﬁts ........

759
40

780
42

793
45

21
2

13
3

Total ............................................

19,868

19,885

19,828

–57

NOTE: The term average number of personnel (ANP)
describes levels and changes in employment at the
Reserve Banks. ANP is the average number of employees
in terms of full-time positions for the period. For instance,

2007
(budgeted)

2006 estimated 2007 budgeted
compared with compared with
2006 budgeted 2006 estimated

a full-time employee who starts work on July 1 counts as
0.5 ANP for that calendar year; two half-time employees
who start on January 1 count as 1 ANP.

Table E.3
Operating Expenses of the Federal Reserve Banks, FRIT, and OEB, by Operational Area,
2006 and 2007
Thousands of dollars except as noted
Percent change
Operational area

Monetary and economic policy ...........
Services to U.S. Treasury and
other government agencies .........
Services to ﬁnancial institutions
and the public ..............................
Supervision and regulation .................
Fee-based services to ﬁnancial
institutions ...................................
Total ...................................................

2006
(budgeted)

2006
(estimated)

2007
(budgeted)

322,242

322,652

343,606

0.1

6.5

409,546

408,962

442,689

–0.1

8.2

708,310
550,446

710,824
555,820

738,599
601,173

0.4
1.0

3.9
8.2

795,755

801,890

827,264

0.8

3.2

2,786,299

2,800,148

2,953,331

0.5

5.5

2006 estimated 2007 budgeted
compared with compared with
2006 budgeted 2006 estimated

Bank Expenses and Employment 37
Table E.4
Employment at the Federal Reserve Banks, FRIT, and OEB, by Operational Area,
2006 and 2007
Average number of personnel except as noted
Amount change
Operational area

Monetary and economic policy ..........
Services to U.S. Treasury and
other government agencies ........
Services to ﬁnancial institutions
and the public .............................
Supervision and regulation ................
Fee-based services to ﬁnancial
institutions ..................................
Support and overhead ........................
Total ..................................................

2006
(budgeted)

2006
(estimated)

2007
(budgeted)

2006 estimated 2007 budgeted
compared with compared with
2006 budgeted 2006 estimated

935

918

928

–17

1,304

1,270

1,289

–35

2,728
2,663

2,648
2,658

2,707
2,676

–80
–5

58
18

2,987
9,251

3,098
9,293

2,747
9,481

111
43

–351
188

19,868

19,885

19,828

–56

Table E.5
Expenses of the Federal Reserve Banks for Salaries of Ofﬁcers and Employees, by District,
2006 and 2007
Thousands of dollars except as noted
Percent change
2006
(budgeted)

2006
(estimated)

2007
(budgeted)

Boston ................................................
New York ...........................................
Philadelphia........................................
Cleveland ...........................................
Richmond ...........................................
Atlanta ................................................
Chicago ..............................................
St. Louis .............................................
Minneapolis........................................
Kansas City ........................................
Dallas .................................................
San Francisco .....................................

73,635
265,953
63,052
81,744
109,312
119,577
101,491
67,926
69,385
82,895
73,160
130,591

72,234
264,495
62,684
81,036
108,200
123,001
99,712
67,053
69,400
82,948
75,978
129,584

75,678
278,439
66,542
87,032
115,453
126,839
107,566
71,170
72,400
87,287
78,483
139,734

–1.9
–0.5
–0.6
–0.9
–1.0
2.9
–1.8
–1.3
0.0
0.1
3.9
–0.8

4.8
5.3
6.2
7.4
6.7
3.1
7.9
6.1
4.3
5.2
3.3
7.8

Total, all Districts .............................

1,238,721

1,236,326

1,306,621

–0.2

5.7

Federal Reserve Information
Technology .....................................
Ofﬁce of Employee Beneﬁts ..............

63,745
4,520

65,796
4,441

71,611
4,927

3.2
–1.8

8.8
10.9

Total...................................................

1,306,985

1,306,563

1,383,159

0.0

5.9

District

2006 estimated 2007 budgeted
compared with compared with
2006 budgeted 2006 estimated

Annual Report: Budget Review, 2007

Table E.6
Capital Outlays of the Federal Reserve Banks, by District, and of FRIT and OEB,
2006 and 2007
Thousands of dollars except as noted
Percent change
District

2006
(budgeted)

2006
(estimated)

2007
(budgeted)

Boston .................................................
New York ............................................
Philadelphia.........................................
Cleveland ............................................
Richmond ............................................
Atlanta .................................................
Chicago ...............................................
St. Louis ..............................................
Minneapolis.........................................
Kansas City .........................................
Dallas ..................................................
San Francisco ......................................

24,843
69,737
20,966
28,157
58,623
17,335
20,841
42,743
4,782
74,738
9,874
49,753

21,697
62,847
16,553
23,404
36,005
22,863
25,418
29,503
5,258
89,726
13,052
51,731

18,334
77,456
23,361
24,161
59,717
32,928
20,633
43,559
5,131
150,440
17,318
49,669

–12.7
–9.9
–21.0
–16.9
–38.6
31.9
22.0
–31.0
9.9
20.1
32.2
4.0

–15.5
23.2
41.1
3.2
65.9
44.0
–18.8
47.6
–2.4
67.7
32.7
–4.0

Total, all Districts .............................

422,392

398,057

522,708

–5.8

31.3

Federal Reserve Information
Technology..................................
Ofﬁce of Employee Beneﬁts ...............

51,771
...

53,546
150

68,115
800

Total ...................................................

474,163

451,753

591,623

2006 estimated 2007 budgeted
compared with compared with
2006 budgeted 2006 estimated

3.4
...
–4.7

27.2
...
31.0

. . . Not applicable.

Table E.7
Capital Outlays of the Federal Reserve Banks, FRIT, and OEB, by Category,
2006 and 2007
Thousands of dollars except as noted
Percent change
Category

Building-related projects and facility
improvements .............................
Security enhancements........................
Information technology ......................
Payment system improvement
initiatives.....................................
Miscellaneous1 ...................................
Total ...................................................

2006
(budgeted)

2006
(estimated)

2007
(budgeted)

252,030
64,156
72,966

240,399
37,600
52,892

314,478
69,368
76,103

–4.6
–41.4
–27.5

30.8
84.5
43.9

80,538
4,472

114,562
6,301

126,394
5,279

42.2
40.9

10.3
–16.2

474,163

451,753

591,623

–4.7

31.0

1. Includes other equipment purchases.

2006 estimated 2007 budgeted
compared with compared with
2006 budgeted 2006 estimated

Maps of the
Federal Reserve System

Annual Report: Budget Review, 2007

The Federal Reserve System

9
2

MINNEAPOLIS

12
SAN FRANCISCO

CHICAGO

CLEVELAND

KANSAS CITY

NEWYORK
HILADELPHIA

RICHMOND

ST. LOUIS

BOSTON

TLANTA

11 D

ALLAS

ALASKA
HAWAII

LEGEND
Both pages

Facing page

Federal Reserve Bank city

•

Board of Governors of the Federal
Reserve System, Washington, D.C.

— Branch boundary

NOTE
THE FEDERAL RESERVE OFﬁCIALLY IDENTI ﬁES
DISTRICTS BY NUM BER AND RESERVE BANK
CITY (SHOWN ON BOTH P AGES) AND BY LETTER
(SHOWN ON THE FACING P AGE).
IN THE 12TH DISTRICT, THE SEATTLE BRANCH
SERVES ALASKA AND THE SAN FRANCISCO BANK
SERVES HAWAII .
THE SYSTEM SERVES COM M ONW EALTHS
AND TERRITORIES AS FOLLOWS: THE NEW YORK

Federal Reserve Branch city

Bank serves the Commonwealth of
Puerto Rico and the U.S. Virgin Islands;
the San Francisco Bank serves American
Samoa, Guam, and the Commonwealth of
the Northern Mariana Islands. The maps
show the boundaries within the System
as of year-end 2006.

Maps of the Federal Reserve System 41

1−A

2−B

4−D

3−C

5−E

Pittsburgh

Baltimore

NY
PA
NJ

WV
NH

Buffalo

Cincinnati

Charlotte

KY
SC

BOSTON

NEW YORK

CLEVELAND

PHILADELPHIA
7−G

6−F

RICHMOND
8−H

Nashville

Birmingham

MI
IL

Detroit

Louisville

TN
LA

Jacksonville

New Orleans

Memphis

Little
Rock

Miami

9−I

ST. LOUIS

CHICAGO

ATLANTA
MT
ND

Helena
MI
WI
SD

MINNEAPOLIS
12−L

10−J
WY

Omaha

Denver

ALASKA

Seattle

Oklahoma City
Portland
OK
OR

KANSAS CITY

ID
CA
NV

11−K

Salt Lake City

El Paso

Houston
Los Angeles
San Antonio
HAWAII
AZ

DALLAS

SAN FRANCISCO

0407

Full text of Annual Report : Budget Review : 2007

FRASER