Full text of Annual Report : Budget Review : 1992-1993
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Board of Governors
of the Federal Reserve System
1992-93
February 1993
This publication is available from Publications Services, Board of Governors
of the Federal Reserve System, Washington, DC 20551.
Contents
Introduction
1
FEDERAL RESERVE BUDGET PROCESS
AND OPERATIONAL AREAS
Parti
The 1993 Budgets
Chapter 1
9
9
11
12
12
FEDERAL RESERVE SYSTEM
Net Expenses
Trends in Expenses and Employment
Operational Areas
1993 Budget Initiatives
13
13
15
16
18
20
21
BOARD OF GOVERNORS
Overview of the Budget
Operations Budget
Operations Budget by Object of Expense
Operations Budget by Operational Area
Capital Budget
Trends in Expenses and Employment
23
23
25
27
30
31
33
34
34
FEDERAL RESERVE BANKS
Major Initiatives
1993 Budget Objective
Operational Areas
Objects of Expense
Capital Outlays
Trends in Expenses and Employment
Volume and Unit Costs
1992 Budget Performance
Chapter 2
Chapter 3
Part II
Special Analysis
Chapter 4
39
40
40
43
44
AUTOMATION CONSOLIDATION
Federal Reserve Automation Services
Consolidation Strategy and Process
FRAS Budget
Summary
Appendixes
Appendix A
47
47
50
50
51
SPECIAL CATEGORIES OF SYSTEM EXPENSE
Priced Services
Capital Outlays
Special Projects
Currency Printing
Appendix B
53
SOURCES AND USES OF FUNDS
Appendix C
55
55
58
FEDERAL RESERVE SYSTEM AUDITS
General Accounting Office
Office of Inspector General
Appendix D
59
EXPENSES AND EMPLOYMENT
AT THE FEDERAL RESERVE BANKS
68
MAPS OF THE FEDERAL RESERVE SYSTEM
1
Introduction
Federal Reserve Budget Process
and Operational Areas
The Federal Reserve System comprises
the seven-member Board of Governors
in Washington, D.C., the twelve Federal
Reserve Banks with their twenty-five
Branches in Districts around 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 to establish a
safe and flexible monetary and banking
system. Over the years, the Congress
has given the Federal Reserve more
authority and responsibility for achieving broad national economic and financial objectives.
As the nation's central bank, the
Federal Reserve has many, varied responsibilities: It acts to ensure growth of
the nation's economy consistent with
price stability; it serves as the nation's
lender of last resort, with responsibility
for forestalling national liquidity crises;
and it is involved in bank supervision
and regulation, with responsibilities for
bank holding companies, state-chartered
banks that are members of the Federal
Reserve System, the foreign activities of
U.S. banks, and the U.S. activities of
foreign banks. The Federal Reserve also
administers the nation's consumer credit
protection laws.
The Federal Reserve System also
plays a major role in the nation's payments mechanism. The Reserve Banks
distribute currency and coin, provide
wire and automated clearinghouse transfers of funds and securities, and process
approximately one-third of all domestic
checks. The Federal Reserve also serves
as the fiscal agent for the U.S. Treasury
and provides a variety of other financial
services for the Treasury and other
government agencies.
In carrying out its responsibilities in
1992, the Federal Reserve System spent
an estimated $1.7 billion and earned an
estimated $947 million in operating
revenue from priced services, reimbursements, and other income, for a total of
$778 million in net operating expenses.
The major source of Federal Reserve
income is earnings on the portfolio of
U.S. government securities in the System Open Market Account, estimated at
$17.3 billion in 1992. Earnings in excess
of expenses, dividends, and surplus—in
1992, an estimated $16.8 billion—are
returned to the U.S. Treasury. (These
earnings are treated as receipts in the
U.S. budget accounting system, and
projections of the earnings by the Office
of Management and Budget appear in
the U.S. budget.)
The Budget Process
The Board of Governors and the Reserve
Banks have separate budgets and budgeting processes.
Board of Governors
All levels of Board management are
involved in a planning and budgeting
process that begins in the spring with
development of a budget guideline and
extends through November of each year.
The administrative governor, under
authority delegated by the Chairman,
oversees the process until the budget is
2
Annual Report: Budget Review, 1989-90
submitted to the Board of Governors for
action at an open meeting in November.
The Board budget is structured in four
operational areas (described in the next
section). Costs for data processing are
distributed to the four areas according
to use; expenses for other elements of
support and overhead are allocated to
the four areas in proportion to the share
of direct costs attributable to each area.
The Board, in accordance with generally
accepted accounting principles, capitalizes assets and depreciates their value
over appropriate time periods instead of
expensing them in the year of purchase.
Hence, the Board has both an operations
and a capital budget.
The Board's Office of Inspector General (OIG), in keeping with its statutory
independence, prepares its proposed
budget apart from the Board's budget.
The OIG budget is also presented to the
Board of Governors for action at an
open meeting in November. (The OIG is
discussed in appendix C.)
After the Board budget is approved,
the cash requirement for the first half of
the calendar year is estimated and the
amount is raised by an assessment on
each of the Reserve Banks in proportion
to its capital stock and surplus. The cash
requirement for the second half of the
year is estimated in June, and the second
assessment is made in July. To minimize
cash balances held by the Board, funds
are transferred quarterly.
Reserve Banks
Each year the Federal Reserve Banks,
like the Board, establish major operating
goals for the coming year, devise strategies for their attainment, estimate required resources, and monitor results.
As with the Board, the process begins
with development of a budget guideline.
The Board of Governors reviews the
proposed level of spending and commu
nicates the budget objective to the
Reserve Banks for their guidance. Each
Bank then develops its own budget. The
budgets are reviewed at the Board, both
as separate documents and in light of
Systemwide issues and the plans of the
other Banks, before they are presented
to the Board of Governors for final
action at an open meeting in December.
The Banks' budgets are also structured in four operational areas (described in the next section), with support
and overhead allocated to the operational areas. Approved separately from
the budget process, which focuses on
operational costs, are special projects,
which are long-range research and
development efforts that have the potential to make a major improvement in the
nation's payments mechanism or in the
Federal Reserve's ability to provide
services (special projects for 1993 are
described in appendix A).
The operations and financial performance of the Reserve Banks are monitored throughout the year via a costaccounting system, the Planning and
Control System (PACS), which was
implemented by the Banks in 1977.
Under PACS, the costs of all Reserve
Bank services—priced and nonpriced,
special and routine—are grouped by
operational area, and the costs of support and overhead are allocated to the
four areas. (The services assigned to
each of the operational areas are listed
in chapter 3, tables 3.7 through 3.10.)
PACS makes it possible to compare
budgets with actual expenses and enables the Board of Governors to compare the financial and operating performances of the Reserve Banks.
Operational Areas
For budgeting purposes, the Board of
Governors and the Reserve Banks
account for their activities in four major
Introduction
operational areas. Three of the areas—
monetary and economic policy, services
to financial institutions and the public,
and supervision and regulation of financial institutions—are common to the
Board and the Banks. The Banks' fourth
operational area is services to the U.S.
Treasury and other government agencies, and the Board's fourth area is
System policy direction and oversight.
Monetary and Economic Policy
The monetary and economic policy
operational area encompasses Federal
Reserve actions to influence the availability and cost of money and credit in
the nation's economy. These actions
include setting reserve requirements,
setting the discount rate (which affects
the cost of borrowing), and conducting
open market operations.
A vast amount of banking and financial data flows through the Reserve
Banks to the Board, where it is compiled
and made available to the public. The
research staffs at the Board and the
Banks use these data, along with information collected by other public and
private institutions, to assess the state of
the economy and the relationships
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
international markets. They also conduct
longer-run economic studies of regional,
national, and international issues.
Services to Financial Institutions
and the Public
The Federal Reserve System plays a
central role in the nation's payments
3
mechanism, which is composed of many
independent systems that move funds
among financial institutions across the
country. The Reserve Banks obtain
currency and coin from the Bureau of
Engraving and Printing and from the
Mint and distribute it to the public
through depository institutions; they
also identify counterfeits and destroy
currency that is unfit for circulation. In
1992 the Reserve Banks distributed
$306.8 billion in currency and $4.4 billion in coin and destroyed $96.7 billion
in unfit currency.
The Reserve Banks (along with their
Branches and regional centers) also
process checks for collection—approximately 18.8 billion checks each year
with an average daily value of more than
$50 billion.
The Federal Reserve also plays a
central role in the nation's payments
mechanism through its wire transfer
system, Fedwire. Through Fedwire, depository institutions can draw on their
reserves or clearing accounts at the
Reserve Banks and transfer funds anywhere in the country. Approximately
7,790 depository institutions use Fedwire through direct computer connections with Reserve Banks, and another
3,408 institutions use Fedwire through
off-line means such as telephone. In
1992, approximately 67 million transfers valued at about $200 trillion were
sent over Fedwire, an average of
$2.9 million per transfer and $800 billion per day.
The Federal Reserve allows participants in private clearing arrangements to
exchange and settle transactions on a net
basis through reserve or clearingaccount balances. Users of net settlement services include local check clearinghouse associations, automated
clearinghouse (ACH) networks, credit
card processors, automated teller
machine networks, and national and
4
Annual Report: Budget Review, 1989-90
regional funds and securities transfer
networks. In 1992, approximately
650,000 net settlement entries for participants in small-dollar clearing arrangements were processed by the Reserve
Banks.
Approximately 27,350 depository
institutions participate in the Federal
Reserve's ACH service, which allows
them to send or receive payments
electronically instead of by check. The
depository institutions use the ACH
service for credit and debit transactions.
Of the approximately 7,900 ACH endpoints, 5,950 have electronic connections with the Federal Reserve; the
others receive payment data via magnetic tapes or paper registers. In 1992
the Reserve Banks processed more than
1.85 billion ACH transactions valued
at about $8.45 trillion; approximately
28 percent of the transactions were for
the federal government, and the rest
were for commercial establishments.
The securities services provided by
the Reserve Banks cover the handling of
book-entry and definitive securities and
the collection of coupons and miscellaneous items. The book-entry service,
begun in 1968, enables holders of
government agency securities to transfer
them electronically to other institutions
throughout the country. The Reserve
Banks maintained approximately 14,593
book-entry accounts in 1992 and processed approximately 11.7 million securities transfers.
Through the definitive securities service, the Reserve Banks store physical
securities not eligible for maintenance
on the Federal Reserve's book-entry
system. The Federal Reserve held about
$10.9 billion of such securities in priced
accounts at the end of 1992.
Through its noncash collection service, the Federal Reserve presents
coupons, bonds, and miscellaneous items
for collection. Coupon collection, which
accounts for approximately 98 percent
of the transactions in this service category, amounted to 2.3 million coupon
envelopes in 1991 and about 1.6 million
coupon envelopes in 1992
Supervision and Regulation
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 establishes 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 mergers, acquisitions, and
changes in control from banks and bank
holding companies, and take formal
supervisory actions. In 1992 the Board
and the Reserve Banks examined approximately 815 state member banks, inspected approximately 2,091 bank holding companies and their subsidiaries,
and acted on a total of 2,967 international and domestic applications.
The Board also enforces compliance
by state member banks with the federal laws protecting consumers in their
use of credit. In 1992 the System
conducted approximately 601 compliance examinations.
The Board's supervisory responsibilities also extend to foreign operations of
U.S. banks and, under the International
Banking Act, to U.S. operations of
foreign banks.
Beyond these activities, the Federal
Reserve 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 System's presence in financial markets, through open
market operations, and in the Federal
Reserve's role as lender of last resort.
Introduction
5
Services to the U.S. Treasury and
Other Government Agencies
System Policy Direction and
Oversight
The U.S. government uses the Federal
Reserve as its bank. Through deposit
accounts at the Reserve Banks, the
government issues checks and payments
and collects receipts. The Reserve Banks
also process wire transfers of funds and
automated clearinghouse payments and
give the Treasury daily statements of
account activity.
Beyond these typical depository
activities, the Reserve Banks provide
several unique services to the government. They monitor the tax receipts
deposited in the 12,967 tax and loan
accounts maintained by depository institutions designated to perform this function, they hold the collateral that those
institutions pledge to support these and
other government deposits, and they
transfer funds to the Treasury's account
at its request. The Reserve Banks assist
the Treasury in its financing of the
public debt by issuing, servicing, and
redeeming all marketable Treasury securities as well as all U.S. savings and
retirement plan bonds. The Reserve
Banks also redeem food coupons for the
U.S. Department of Agriculture and
destroy them.
This operational area encompasses
activities by the Board of Governors to
supervise Board and Reserve Bank
programs. Expenses for these activities
are considered overhead expenses of the
System, and therefore are allocated
across the other operational areas.
•
Parti
The 1993 Budgets
9
Chapter 1
Federal Reserve System
For 1993, the Federal Reserve System
has budgeted net operating expenses of
$886.7 million. It expects to realize
$784.1 million, or 42.1 percent of total
budgeted operating expenses, from
revenues from priced services. Total
operating expenses are budgeted at
$1,862.9 million, an increase of 8.0 percent over estimated 1992 expenses
(table 1.1). This total includes
$1,722.5 million for the Reserve Banks
and $140.4 million for the Board of
Governors.
Not included in these expenses are
Reserve Bank special projects, budgeted
at $80.3 million for 1993, up from
$32.6 million estimated for 1992.1 Also
excluded is the budgeted cost of currency at $347.3 million for 1993, an
increase of 17.7 percent over the estimated 1992 cost of $295.1 million.2 The
distribution of expenses is similar to that
in previous years, with the Reserve
Banks accounting for approximately
three-fourths of the total (chart l.l). 3
Net Expenses
The System expects to recover 52.4 percent of the expenses it incurs during
1993. The following items are deducted
from System operating expenses to
derive net expenses: (1) revenue from
priced payments mechanism services
provided to depository institutions,
(2) other income from services on behalf
of the U.S. Treasury that are paid for by
depository institutions using the services, and (3) claims for reimbursement
by the U.S. Treasury and other government agencies for fiscal agency services.
After these items are deducted, the net
expenses of the System of $886.7 million show an increase of 13.9 percent
over net System operating expenses
estimated for 1992 (table 1.2).
The receipts from priced services
represent fees that are set to recover the
full cost of providing these services to
depository institutions (as required by
the Monetary Control Act of 1980),
including the imputed costs of float and
the return on capital that would have
Chart 1.1
1. As research and development efforts, special
projects are separate from the continuing operations of the System and therefore are not included
in System operating expenses. These relatively
costly, short-term projects are expected to benefit
both the System and the banking industry as a
whole. A description of special projects for 1993
appears in appendix A.
2. The Federal Reserve bears the cost associated with printing new currency at the Bureau of
Engraving and Printing. Because this cost is
determined largely by public demand for new
currency, it is not included in Federal Reserve
operating expenses. See appendix A.
3. A fourth category of expense, capital outlays, is treated separately; see chapters 2 and 3 and
appendix A.
Distribution of Expenses of the
Federal Reserve System, 19931
Special Projects, 3.5%
Currency, 15.2%
Board of
Governors, 6.1%
Reserve Banks, 75.2%
1. See text notes 1 and 2.
10
Annual Report: Budget Review, 1989-90
been received and the taxes that would
have been paid had a commercial entity
in the private sector furnished the
services. The revenue from priced services is detailed in table 1.3; the
constraint imposed on Federal Reserve
budgets by the need to keep such
services competitive and the calculation
of fees are discussed in appendix A. A l l
sources and uses of funds are presented
in appendix B, and the audits of the
System are listed in appendix C.
"Other income" includes fees from
such services as settlement of transfers
among depository institutions and wire
transfer of funds between depository
Table 1.1
Expenses of the Federal Reserve System for Operations, Special Projects,
and Currency, 1991-931
Millions of dollars, except as noted
Entity and
type of expense
Reserve Banks2
Personnel
Nonpersonnel
Board of Governors3
Personnel
Nonpersonnel
Total System operating expenses
Personnel
Nonpersonnel
Special projects4
Currency
5
Percentage change
1991
actual
1992
estimate
1993
budget
1,493.9
967.7
526.2
1,596.3
1048.8
547.5
1,722.5
1,150.0
572.5
6.9
8.4
4.0
7.9
9.6
4.6
111.7
86.6
25.1
128.9
94.9
34.0
140.4
105.1
35.3
15.4
9.6
35.5
8.9
10.7
3.8
1,605.6
1,054.3
551.3
1,725.2
1,143.7
581.5
1,862.9
1,255.1
607.8
7.4
8.5
5.5
8.0
9.7
4.5
6.7
32.6
80.3
295.1
347.3
12.9
17.7
261.3
1. In this and subsequent tables in this volume, details
may not sum to totals and may not yield percentages
shown because of rounding.
2. For detailed information, see chapter 3.
1991 to 1992 1992 to 1993
3. Includes expenses of the Office of Inspector General
and extraordinary items. For detailed information, see
chapter 2.
4. See text note 1 and appendix A.
5. See text note 2 and appendix A.
Table 1.2
Operating Expenses of the Federal Reserve System, Net of Receipts
and Claims for Reimbursement, 1991-93
Millions of dollars, except as noted
Item
Total System operating expenses
1991
1992
1993
actual
estimate
budget
1,605.6
1,725.2
1,862.9
750.0
18.6
767.6
5.3
152.1
174.0
778.3
Percentage change
1991
to 1992 1992 to 1993
7.4
8.0
784.1
2.3
5.4
186.7
-71.5
14.4
2.1
1.9
7.3
886.7
13.6
13.9
LESS
Revenue from priced services
Other income1
Claims for reimbursement2
EQUALS
Net System operating expenses
684.9
1. Before January 1992, fees for transfer of U.S.
Treasury book-entry securities were included in other
income; now they are forwarded directly to the U.S.
Treasury general account.
2. Costs of fiscal agency services provided to the U.S.
Treasury and other government agencies for which the
agencies have agreed to reimburse the Federal Reserve. In
practice, not all these claims are paid.
Federal Reserve System
Table 1.3
Revenue from Priced Services, 1991-93
Millions of dollars
1991
actual
Service
Funds transfers and
net settlement
Automated clearinghouse
services
Commercial checks
Book-entry securities
transfers
Definitive securities
safekeeping
Noncash collection
Special cash services
Total
1992
1993
estimate budget
79.1
86.5
90.6
58.1
571.8
60.5
583.4
61.5
603.0
11.6
4.2
13.1
3.3
14.2
2.1
9.8
15.4
7.8
13.0
5.9
6.8
750.0
767.6
784.1
institutions and the Treasury. Claims for
reimbursement represent expenses incurred by Reserve Banks in providing
fiscal agency services to the Treasury
and other government agencies for
which the agencies have agreed to
reimburse the Federal Reserve.
Trends in Expenses and
Employment
From 1983 (actual expenditures) to
1993 (amount budgeted), the expenses
of the Federal Reserve System have
increased an average of 5.4 percent per
year in current dollars and 1.8 percent
per year when adjusted for inflation
(chart 1.2). Over the same ten-year
period, System employment, including
staff working on special projects, has
increased 1,803 (chart 1.3).
From 1982, when the transition to the
requirements of the Monetary Control
Act was completed, through 1984, System expenses remained essentially flat
when adjusted for inflation, and employment declined. In 1985, the staffing level
was increased in a pronounced effort to
strengthen supervision and regulation of
member banks and bank holding companies. The System was able to partially
offset the increase in staff through
reductions in employment in other areas,
primarily in services to financial institutions and the public and in support and
overhead.
In 1988, the Expedited Funds Availability Act, which requires the Federal
Reserve to issue regulations to ensure
the prompt availability of funds and the
expeditious return of checks, became
effective. Increases in staff throughout
the System in 1988 and 1989 resulted
from implementation of the provisions
of this legislation. In 1991 and continuing through projected 1993, spending on
Chart 1.2
Chart 1.3
Operating Expenses of the Federal
Employment in the Federal Reserve
Reserve System, 1 9 8 3 - 9 3
1
11
System, 1 9 8 3 - 9 3 '
Thousands of persons
Billions of dollars
1.8
26
1.6
25
1.4
24
1.2
1983
1988
1. For 1992, estimate; for 1993, budget.
2. Calculated with the GDP price deflator.
1993
1983
1988
1993
1. For 1992, estimate; for 1993, budget. Includes
special project staff.
12
Annual Report: Budget Review, 1989-90
bank supervision grew, reflecting an
increase in the number and complexity
of examinations, greater attention to
problem institutions, passage of the
Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA),
and passage of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (FDICIA).
Operational Areas
For budgeting purposes, expenses of the
Federal Reserve are classified according
to the four major operational areas of the
System (see table 1.4). The costs for
support and overhead (including Board
expenditures for System policy direction
and oversight, considered an overhead
expense of the System) are redistributed
or allocated to these four areas.
1993 Budget Initiatives
Several major initiatives will continue
or begin in 1993:
• Improvement of facilities at several Reserve Banks and Branches will
continue.
• The upward pressure on expenses
and staffing associated with supervision
and regulation activities will carry over
from 1992 because of expanded responsibilities mandated by the FDICIA.
• Projects related to office automation
and consolidation of System automation
will continue.
Partly offsetting the increased expenses associated with these initiatives
will be productivity and operational
improvements in a number of areas. •
Table 1.4
Operating Expenses of the Federal Reserve System, by Operational Area, 1991-931
Millions of dollars, except as noted
Operational area
and entity
1991
actual
1992
estimate
1993
budget
Percentage change
1991 to 1992 1992 to 1993
Monetary and economic policy
Reserve Banks
Board of Governors
175.0
106.7
68.3
185.6
110.5
75.1
198.5
119.6
78.9
6.1
3.6
10.0
7.0
8.2
5.1
Services to the U.S. Treasury and
other government agencies2
169.5
181.4
196.7
7.0
8.5
Services to financial institutions
and the public
Reserve Banks
Board of Governors
984.0
980.4
3.6
1,030.7
1,027.6
3.1
1,088.4
1,084.9
3.5
4.8
4.8
-13.9
5.6
5.6
12.9
Supervision and regulation
Reserve Banks
Board of Governors
277.3
237.4
39.9
327.4
276.7
50.7
379.2
321.2
58.0
18.1
16.6
27.1
15.8
16.1
14.4
1,605.6
1,493.9
111.8
1,725.2
1,596.3
128.9
1,862.9
1,722.5
140.4
7.4
6.8
15.4
8.0
7.9
8.9
Total
Reserve Banks
Board of Governors3
1. Operating expenses reflect all allocations for support and overhead and exclude capital outlays. The
operational area unique to the Board of Governors,
System policy direction and oversight, which is shown
separately in chapter 2, has been allocated across the
operational areas listed here. As a result, the numbers for
the operational areas in chapter 2 are not the same as the
numbers shown in this table.
2. Reserve Banks only. The Board of Governors does
not provide these services.
3. Includes expenses of the Office of Inspector General
and extraordiary items.
13
Chapter 2
Board of Governors
The 1993 budget of the Board of
Governors provides $137.0 million for
operations, $0.3 million for extraordinary items (projects of a unique or
one-time nature), and $3.2 million for
the Office of Inspector General. The
Board authorized 1,683 positions for
operations and 32 positions for the
Office of Inspector General; no positions
are required for the extraordinary items.
The total budget of $140.4 million
represents an increase of $11.6 million,
or approximately 8.9 percent, over estimated 1992 expenses. The total of 1,715
positions is an increase of 36 over the
number authorized at the end of 1992.
The 1993 budgeted expenses and staffing for the OIG, considerably higher
than for 1992, reflect an expansion
of responsibilities for auditing both the
supervision and regulation function
and Board responsibilities for System
activities.
Overview of the Budget
Board Operations
The operations budget of $137.0 million, which covers the Board's four
operational areas, is 10.7 percent greater
than estimated 1992 expenses. Approximately one-third of the increase is
attributable to ongoing activities. The
remainder is due to increased nondiscretionary requirements, including the following: (1) full-year costs in 1993 for
positions added in 1992 in response to
developments in the financial industry,
implementation of the Federal Deposit
Insurance Corporation Improvement
Act of 1991 (FDICIA), and a need to
improve the quality of economic data;
(2) costs resulting from the recent
expansion and reorganization of the
Division of Consumer and Community
Affairs to better meet the requirements
of the Community Reinvestment Act
(CRA) and the Home Mortgage Disclosure Act (HMDA); (3) increased staffing
to support international activity in the
monetary and economic policy area,
particularly long-term research, and a
growing workload resulting from the
economic and political transformation
of the former Soviet Union and Eastern
Europe; (4) increased staff to support the
growing workload in the payments
systems and communications areas resulting from anticipated approval of new
policies related to same-day presentment, pricing of daylight overdrafts,
lengthening of the Fedwire day, and
changes in rules for posting nonwire
transactions; (5) staff, training, and other
resources needed for determination of
policies regarding over-the-counter
derivatives; (6) improved automation
capabilities, including software to facilitate movement of applications from
the mainframe to distributed systems,
increased data storage to extend the
life of the mainframe, upgrading of the
mainframe printing facility, and enhanced records management, HMDA
mapping, financial management, and
data security; and (7) additional leased
office space to accommodate the growth
in staff.
Extraordinary Items
The 1993 budget for extraordinary items
is $0.3 million. Extraordinary items are
not included in the Board's basic oper-
14
Annual Report: Budget Review, 1989-90
ating budget because the costs of these
projects vary widely from year to year,
resulting in large swings in the budget,
as reflected in the decrease for 1993
(table 2.1).
Two projects are included in the 1993
extraordinary items budget. The first,
allocated $100,000, is a survey of plant
capacity to gather benchmark data for
estimates of 1991 and 1992 manufacturing capacity utilization, to be published
in the Federal Reserve Board monthly
statistical release Industrial Production
and Capacity Utilization. The second
project, allocated $210,000, is an audit
of the Federal Reserve Bank of Cleve-
land by a public accounting firm to
ensure that controls and standards
applied by the Reserve Banks in their
internal audits are consistent with those
applied by the accounting profession.
Office of Inspector General
The 1993 budget for the Office of
Inspector General of $3,171,304 is
58.0 percent greater than estimated 1992
expenses. The increase funds the annual
salary increase and ten new positions.
Six positions have been added to meet
new responsibilities suggested by the
FDICIA, and other supervision and
Table 2.1
Expenses of the Board of Governors, by Division, Office, or Special Account, 1991-93
Division, office,
or special account
Board Members
Secretary
Legal
Research and Statistics ..
International Finance
Banking Supervision
and Regulation
Human Resources
Management
Support Services
1991
actual
1992
estimate
1993
budget
Change, 1991 to 1992
Change, 1992 to 1993
Amount
Amount
Percent
Percent
3,168,366 3,999,873 4,149,463
3,390,771 3,295,440 3,758,330
4,785,867 5,895,151 6,778,534
21,855,849 22,307,993 23,596,310
7,651,563 7,911,292 8,586,751
831,507
-95,331
1,109,284
452,144
259,729
26.2
-2.8
23.2
2.1
3.4
149,590
462,890
883,383
1,288,317
675,459
3.7
14.0
15.0
5.8
8.5
13,921,542
19,463,364
2,342,622
16.8
3,199,200
19.7
3,589,056 4,254,886 4,529,525
18,718,396 21,159,907 23,368,486
665,830
2,441,511
18.6
13.0
274,639
2,208,579
6.5
10.4
1,970,671 2,182,072
1,864,141
Controller
Consumer and
Community
3,318,317 3,800,653 4,534,474
Affairs
Staff Director for
5,556,162 5,013,504 5,372,938
Management
Reserve Bank
Operations
and Payment
10,547,360 11,278,335 12,411,017
Systems
Information Resources
20,193,241
22,367,899 24,076,049
Management (IRM).
8,464,584
8,780,088 7,997,357
Monetary Affairs
1,975,174
1,602,113 2,262,263
Special projects
IRM income account1 . . . -19,507,087 -15,354,726 -16,523,402
106,530
5.7
211,401
10.7
482,336
14.5
733,821
19.3
-542,658
-9.8
359,434
7.2
Total, Board
operations
Extraordinary items
Office of Inspector
General
16,264,164
730,975
6.9
1,132,682
10.0
2,174,658
-782,731
-373,061
4,152,361
10.8
-8.9
-18.9
21.3
1,708,150
467,227
660,150
-1,168,676
7.6
5.8
41.2
-7.6
109,808,806 123,764,512 137,010,758 13,955,706
12.7
13,246,246
10.7
373,333
3,161,000
310,000
2,787,667
1,568,102
2,007,673
3,171,304
439,571
1. Offsetting charge to Board divisions for use of central IRM resources.
-2,851,000
28.0
1,163,631
58.0
Board of Governors
regulation responsibilities, two have
been added to enhance OIG auditing of
Board activities to oversee the Reserve
Banks and Board responsibilities for
System activities, and one has been
added to audit Board automation areas;
one secretarial position has been added
to support the staff.
Operations Budget
The Board operations budget for 1993
has been broken down into three major
areas: current-level activities, consisting
of funds required to maintain current
operations; initiatives, consisting of
funds for new projects and activities in
1993; and office space, unique to 1993,
consisting of funds required to acquire
additional office space for Board staff.
Current-Level Activities
The budget increment from 1992 to
1993 to sustain operations at the current
level is $7.5 million, or 6.0 percent. The
largest component of the increase is for
compensation, including the full-year
cost of salaries and benefits for a net of
eighty-six new positions added in 1992.
The workload in the supervision and
regulation area continues to grow, driven
by legislation requiring greater supervision of foreign banks in the United
States and U.S. banks in foreign countries, and by problems in the nation's
financial industry. Examinations of foreign institutions are proving more timeconsuming than examinations of domestic financial institutions; therefore, the
level of resources required has increased
even more than initially forecast. No
positions have been added in 1993 to
absorb the additional workload; however, fifty-six positions added to the
Division of Banking Supervision and
15
Regulation in 1992 required a significant amount of increased funding in
1993. The Legal Division added twelve
positions in 1992 in response to the
increased supervisory responsibility resulting from the Foreign Bank Supervisory Enhancement Act and to support a
new Special Investigations and Examinations program in the Division of
Banking Supervision and Regulation.
The Division of Consumer and Community Affairs added ten positions late
in 1992 as part of an expansion and
reorganization resulting from the increased workload associated with the
development and analyses of HMDA
data, actions to correct problems identified by those analyses, response to a
higher volume of CRA protests, and
other requirements.
As in 1992, approximately $3.2 million is included in the 1993 budget to
support and manage the National Information Center (NIC) project. Funds will
cover transition of current software to
the NIC database as well as testing and
acceptance of future releases of the
file update/user access software that
enhances data entry, data edits, and user
access. Also covered by the budget is
implementation of a new version of the
Supervisory Information System (SIS),
which allows examiners and financial
analysts to upload, store, and download
supervisory data to and from the NIC.
The level of resources provided by the
1993 budget is necessary to maintain the
1994 completion schedule. Upon completion, maintenance of old systems will
be discontinued, resulting in significant
savings.
The budget also provides funds for
routine facility maintenance and for
scheduled projects. The level of funding
for facilities in 1993 is less than that
in the 1992 budget. Other significant
expenditures for facilities are classified
as initiatives.
16
Annual Report: Budget Review, 1989-90
Initiatives
The 1993 budget provides $3.8 million
for initiatives, including increased staffing, improved automation capabilities,
and some unscheduled repairs to the
Board's facilities. The costs associated
with initiatives, together with the currentlevel increase described in the preceding
section, account for the increases in
division budgets shown in table 2.1.
Table 2.2 gives the number of authorized positions by division and office.
number of parking spaces, furniture,
communications and other support
equipment, and an engineering study of
the potential new site.
The Division of Information Resources Management has budgeted an
additional $229,300 to provide automation support to staff moved off-site. This
support includes an on-site mainframe
printer, a local area network, and data
communications capabilities.
Office Space
Operations Budget by
Object of Expense
The budget provides $2.3 million to
lease approximately 38,000 square feet
of space to meet interim needs of the
Board, to reconfigure space in the
Eccles/Martin complex, and to continue
exploring acquisition of additional space.
Other expense items include a limited
The most significant item in the Board's
1993 budget is personnel expense, which
accounts for 75 percent of operating
expenses (table 2.3). The increase in the
salary budget, $8.1 million, includes
annual salary increases for current personnel, incremental funding for posi-
Table 2.2
Positions Authorized at the Board of Governors, by Division or Office, 1991-93
Division or office
1991
actual
1992
estimate
1993
budget
Change
1991 to 1992 1992 to 1993
Board Members
Secretary
Legal
Research and Statistics
International Finance
Banking Supervision and
Regulation
Human Resources Management
Concern1
38
58
72
256
103
38
59
84
269
106
38
59
84
270
110
0
1
12
13
3
0
0
0
1
4
183
48
22
239
48
22
239
48
22
56
0
0
0
0
0
Support Services
Controller
Consumer and Community Affairs
Staff Director for Management
Reserve Bank Operations and
Payment Systems
Information Resources Management ..
Monetary Affairs
Special projects
259
31
43
7
259
31
43
7
260
31
53
7
0
0
0
0
1
0
10
0
116
271
62
2
118
270
63
1
124
271
66
1
2
-1
1
-1
6
1
3
0
1,571
1,657
1,683
86
26
19
13
22
14
32
14
3
1
10
0
Total, Board operations
Office of Inspector General
FFIEC2
1. EEO Concern positions managed by the Division of Human Resources Management.
2. Federal Financial Institutions Examination Council.
Board of Governors
tions added in 1992, and funding for the
twenty-six positions added for 1993.
The increases in insurance and retirement expenses are primarily a result of
the increased number of employees.
Actions approved by the Board during
1992 helped limit rate increases for
17
health insurance, a major item in recent
years, and had a side effect of limiting
the added expense resulting from Financial Accounting Standard 106 (Employers' Accounting for Postretirement Benefits other than Pensions), which
becomes effective in 1993.
Table 2.3
Operating Expenses of the Board of Governors, by Object of Expense, 1991-93
Object of expense
Personnel
Salaries
Retirement
Insurance
Total
1991
actual
1992
estimate
1993
budget
Extraordinary items . . .
Office of Inspector
General
Change, 1992 to 1993
Amount
Amount
Percent
Percent
6,378,797
1,189,970
348,134
7,916,901
8.6
23.5
5.4
9.3
8,081,562
595,030
764,759
9,441,351
10.1
9.5
11.2
10.1
736,899
21.3
606,889
14.5
-30,377
-2.5
61,134
5.2
48,767
39,575
457,096
3.0
3.8
49.2
83,125
97,000
-45,120
5.0
9.0
-9.6
92,403
454,191
12.8
18.7
-1,889
688,458
-.2
23.9
484,957
114,846
69.9
12.3
118,349
1,131,514
10.0
138.7
111,681
64,341
18.4
3.8
53,599
42,000
7.4
2.4
926,868
92.5
-308,620
-16.0
111,358
5.9
261,919
13.0
65,529
34.4
0
0
1,785,467
66.9
625,561
14.0
320,366
47.7
166,116
16.8
67,279
509,963
-322,404
6,038,805
10.5
9.1
-192.3
24.7
37,371
532,409
-344,920
3,804,895
5.3
8.7
-223.0
12.5
109,808,806 123,764,512 137,010,758 13,955,706
12.7
13,246,246
10.7
73,814,229 80,193,026 88,274,588
5,061,515
6,251,485
6,846,515
6,498,142
6,846,276
7,611,035
85,373,886 93,290,787 102,732,138
Goods and services
Travel
3,461,161 4,198,060 4,804,949
Postage and
expressage
1,205,177
1,174,800
1,235,934
Telephone and
telegraph
1,605,383
1,654,150
1,737,275
Printing and binding ..
1,042,125
1,081,700
1,178,700
—471,280
Publications
-928,376
-516,400
Stationery and
812,604
supplies
720,201
810,715
2,428,141 2,882,332
Software
3,570,790
Furniture and
equipment
693,850
1,178,807
1,297,156
Rentals
-930,489
-815,643
315,871
Books and
subscriptions
608,422
720,103
773,702
Utilities
1,685,659
1,750,000
1,792,000
Building repairs
and alterations . . .
1,001,932
1,928,800
1,620,180
Equipment repairs
and maintenance .
2,008,303
2,270,222
1,896,945
Contingency
Processing
Center expenses ..
190,571
256,100
256,100
Contractual
professional
services
2,669,270 4,454,737
5,080,298
Tuition/registration
and membership
991,376
1,157,492
fees
671,010
Subsidies and
706,254
743,625
contributions
638,975
6,649,637
Depreciation
5,607,265
6,117,228
All other
167,698
-154,706
-499,626
Total
24,434,920 30,473,725 34,278,620
Total, Board
operations
Change, 1991 to 1992
373,333
3,161,000
310,000
2,787,667
1,568,102
2,007,673
3,171,304
439,571
-2,851,000
28.0
1,163,631
58.0
18
Annual Report: Budget Review, 1989-90
The amount budgeted for goods and
services is $3.8 million, or 12.5 percent,
greater than estimated 1992 expenses.
Rental expenses will increase as a result
of leasing additional office space to
support the growth in personnel, and
software expenses will increase as a
result of a continuing migration from
mainframe to distributed automation
support. Travel expenses are continuing
to increase, owing to the higher staffing
level, a continued high level of travel to
resolve supervisory issues, and fare
increases. In contrast, costs for building
repairs and alterations will decline with
the completion of 1992 projects.
Operations Budget by
Operational Area
The Board operations budget supports
four broadly defined operational areas:
monetary and economic policy, supervision and regulation, services to financial
institutions and the public, and {system
policy direction and oversight. The costs
of support and overhead are allocated to
the operational areas in proportion to
direct expenses. Data on expenses and
positions for each operational area for
1991-93 are shown in tables 2.4 and 2.5.
Monetary and Economic Policy
The budget for monetary and economic
policy is $62,373,000, an increase of
7.1 percent over estimated 1992 expenses. Funds are provided for the
monetary and economic policy divisions
to meet a growing workload resulting
from turbulence in domestic and foreign
economies and financial markets, the
evolution of the economic structure, and
added support required by activities in
the supervision and regulation operational area. Enhancement of automation
capabilities in these divisions will continue, and eight positions have been
added to provide increased emphasis on
monetary aggregates and bank credit,
longer-term research, and the economic
and political transformation of the former
Soviet Union and Eastern Europe.
Supervision and Regulation
The budget for supervision and regulation is $45,920,000, an increase of
Table 2.4
Expenses of the Board of Governors for Operational Areas,
Extraordinary Items, and Office of Inspector General, 1991-931
Thousands of dollars, except as noted
Change, 1991 to 1992
Change, 1992 to 1993
1991
actual
1992
estimate
1993
budget
55,006
32,151
58,261
39,342
62,373
45,920
3,255
7,191
5.9
22.4
4,112
6,578
7.1
16.7
2,865
2,384
2,766
-481
-16.8
382
16.0
19,786
23,777
25,952
3,991
20.2
2,175
9.1
Total, Board operations ...
109,808
123,764
137,011
13,956
12.7
13,247
10.7
Extraordinary items
Office of Inspector General .
373
1,568
3,161
2,007
310
3,171
2,788
439
28.0
-2,851
1,164
58.0
Type of expense
Monetary and economic
policy
Supervision and regulation .
Services to financial
institutions and the
public
System policy direction and
oversight
Amount
1. Operating expenses include allocations for support and overhead.
Percent
Amount
Percent
Board of Governors
16.7 percent over estimated 1992 expenses. Funds are provided for increased
international activity, particularly for
supervising the activities of foreign
banks and branches in the United States
and for increased enforcement activity.
Several new programs were added in
1992 to support activities that now
require more attention. These include
International Regulation and Examination Policy, Special Investigations and
Examinations, Regulatory Reporting and
Accounting Issues, and Supervisory
Reviews and Evaluations.
The workload resulting from the
HMDA and the CRA continues to
increase, as the number and complexity
of applications requiring analysis has
grown dramatically. Although efficiency, timeliness, and the quality of
analysis have been improved by new
methods of analyzing and using the data
and automation tools, additional staffing
was recently approved for this function.
All divisions that support this operational area continue to invest in automation and software. The Division of
Banking Supervision and Regulation is
participating in the development of the
National Information Center, which will
19
constitute the database for structure and
financial information for the entire System. The Division of Consumer and
Community Affairs is working closely
with the Federal Financial Institutions
Examination Council (FFIEC) to process and analyze HMDA data and, in
1993, will begin using mapping software to improve analysis. The Board's
share of the 1993 expense to produce
the HMDA data will be approximately
$0.3 million.
Services to Financial Institutions
and the Public
The budget for oversight of Reserve
Bank services to financial institutions
and the public is $2,766,000, an increase
of 16.0 percent over estimated 1992
expenses. This operational area encompasses programs responsible for payments activities and related regulatory
and policy initiatives. It also includes
oversight of the development of new,
consolidated applications intended to
improve the efficiency of Reserve Bank
automated clearinghouse, book-entry
securities transfer, and funds transfer
services. Two additional positions are
Table 2.5
Positions Authorized at the Board of Governors for Operational Areas,
Support and Overhead, and Office of Inspector General, 1991-931
Type of expense
Monetary and economic
policy
Supervision and regulation .
Services to financial
institutions and the
public
System policy direction and
oversight
1991
actual
1992
estimate
1993
budget
Change, 1991 to 1992
Change, 1992 to 1993
Amount
Percent
Amount
Percent
8
10
1.9
2.7
401
292
417
365
425
375
16
73
4.0
25.0
22
22
24
0
0
2
9.1
154
156
160
2
1.3
4
2.6
702
697
699
-5
-.7
2
.3
Total, Board operations ...
1,571
1,657
1,683
86
5.5
26
1.6
Office of Inspector General .
19
22
32
3
15.8
10
45.5
Support and overhead
1. Support and overhead positions not allocated to operational areas.
20
Annual Report: Budget Review, 1989-90
required to enhance understanding of
industry practices for clearing and settlement of book-entry securities and for
electronic payments systems.
System Policy Direction and
Oversight
The budget for System policy direction
and oversight is $25,952,000, a 9.1 percent increase over estimated 1992
expenses. This operational area encompasses supervision of Board and Reserve
Bank programs; the 1993 budget reflects
the addition of the Payment System Risk
and the Payment System Studies programs to the area in late 1991.
Chart 2.1
Operating Expenses of the Board
of Governors, 1983-931
Millions of dollars
The major factors contributing to the
1993 increase are the addition of two
positions for System policy direction to
help improve understanding of other
domestic and foreign large-value payments systems; two positions for System
policy oversight to assist in reviews of
the Reserve Banks and the Federal
Reserve Automation Services sites and
to set up and manage databases for
analyzing payments system issues; the
Board's share of System costs for the
Daylight Overdraft Reporting and Pricing System (DORPS) project; and projects to improve automation procedures
at the Board and Reserve Banks. A
savings bond consolidation effort is also
under way that will reduce costs to the
Treasury. Current private sector initiatives to develop clearinghouses and netting systems will continue to expand, resulting in a need to assess these systems
to determine risk implications and the
degree to which they have taken account
of and compensated for systemic risk.
130
Current dollars
110
90
1983
1
1988
I
The 1993 capital budget of $7.4 million
provides $6.5 million for critical initia-
70
1983 dollars2
I
Capital Budget
L
1993
Expenses in millions of
Chart 2.2
Expenses for Personnel Services at
the Board of Governors, 1983-931
Millions of dollars
Year
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
Current dollars
1983 dollars
71.6
76.5
82.0
84.0
86.23
89.9
95.33
102.4
109.8
123.8
137.0
71.6
73.2
75.6
75.5
75.1
75.4
76.5
79.0
81.8
89.9
97.1
1. Excludes the Office of Inspector General and
extraordinary items. For 1992, estimate; for 1993, budget.
2. Calculated with the GDP price deflator.
3. Numbers slightly revised from earlier edition.
1983
1988
1993
1. Excludes the Office of Inspector General. For 1992,
estimate; for 1993, budget.
2. Calculated with the GDP price deflator.
Board of Governors
tives, including $1.4 million for equipping and configuring additional office
space. The increase over estimated 1992
expenditures, $2.6 million, is due to
capital costs associated with new office
space and investment in a fan room and
air-handling equipment for the Eccles
Building.
The budget includes approximately
$1.3 million for new and upgraded
workstations, printers, and peripheral
equipment for the research divisions. A
major portion of this amount is earmarked for expanding the computer
power of the research network and
improving the quality of the user interface. Funds are also included to support
the transfer of all applications now
running on the Board's VM mainframe
computer to a distributed processing
network.
Also included in the capital budget
are funds for the second phase of a
premise-wide network project, additional baseline workstation technology
for all IRM staff, replacement of printers
in the data center to provide greater
reliability and faster throughput of printouts, and the acquisition of new technology for pilot projects.
Chart 2.3
Expenses for Goods and Services at
the Board of Governors, 1983-93 1
Millions of dollars
21
The Division of Support Services's
budget includes $3.2 million to support
the new leased office space, to refurbish
and reallocate space in the Martin
Building, and for other equipment for
the cafeteria and mechanical plant.
The remainder of the budget is allocated for smaller projects, including
automation equipment for the Division
of Banking Supervision and Regulation
and systems modernization for the
Office of the Controller as part of its
Administrative Systems Automation
project.
Trends in Expenses and
Employment
The increase in the 1993 operations
budget, 10.7 percent, is greater than the
average annual rate of increase of
8.8 percent over the past five years and
6.7 percent over the past ten years. The
larger increase reflects the sharp increases in staff to meet the growing
responsibilities of the Board resulting
from legislation, the condition of the
financial industry, and economic conditions here and abroad. Charts 2.1-2.5
show trends for the period from 1983.
Chart 2.4
Annual Rate of Change in Operating
Expenses of the Board of Governors,
1983-93'
Percent
1. Excludes the Office of Inspector General and
extraordinary items. For 1992, estimate; for 1993,
budget.
2. Calculated with the GDP price deflator.
r
1983
,
.n n i l ,
1988
1 1 1
1993
1. Excludes the Office of Inspector General and
extraordinary items. For 1992, estimate; for 1993, budget.
22
Annual Report: Budget Review, 1989-90
Adjusted by the GDP deflator, the
average annual rate of increase in the
operations budget has been 5.2 percent
over the past five years and 3.1 percent
over the past ten years. The higher rate
of increase during the past five years
reflects an increasing staffing level in the
supervision and regulation operational
area, more competitive salaries, and rent
for additional office space.
The operations budget authorizes
1,683 positions, an increase of 26 over
1992, and 43 over 1983, when 1,640
positions were authorized. Significant
decreases in central data processing
operations and clerical tasks have
resulted from technology changes and
Chart 2.5
Employment and Authorized Positions
at the Board of Governors,
1983-931
Number, in thousands
1.7
1988
1983
Year
1983
1984
1985
1986
19872
1988
19892
1990
1991
1992
1993
Employment
1,583
1,588
1,521
1,484
1,465
1,484
1,478
1,5052
1,5172
1,592
1,632
1993
Authorized
positions
1,612
1,653
1,580
1,540
1,529
1,534
1,533
1,529
1,541
1,629
1,655
1. Year-end data. Excludes twenty-eight summer intern and youth positions and Office of Inspector General.
For 1992, estimate; for 1993, budget.
2. Numbers slightly revised from earlier edition.
distributed processing. The decline of 56
positions in IRM and 19 positions in
Support Services since 1983 has been
more than offset, however, by the
increase of 103 positions in the Division
of Banking Supervision and Regulation
and 19 positions in the Legal Division
over the same period.
•
23
Chapter 3
Federal Reserve Banks
The 1993 operating budgets for the
Federal Reserve Banks approved by the
Board of Governors total $1,722.5 million, an increase of $126.2 million, or
7.9 percent, over estimated 1992 expenses (table 3.1). Not included in the
budgets are the costs of three special
projects—Check Image Processing
($3.1 million), Development of Currency Authentication Systems ($4.2 million), and Automation Consolidation
($73.0 million).1 Including the costs of
these special projects, the Reserve
Banks' 1993 budgets total $1,802.8 million, an increase of $173.9 million,
or 10.7 percent, over estimated 1992
expenses.
Employment excluding the staff associated with the special projects is budgeted at 24,286 average number of
personnel (ANP), an increase of 272
ANP, or 1.1 percent, over estimated
1992 employment.2 Including the special projects staff, total budgeted
employment is 24,586, an increase
of 466 ANP over estimated 1992
employment.3
Expenses for personnel (salaries and
benefits) account for $1,150.0 million,
or 66.8 percent of Reserve Bank operating expenses budgeted for 1993, an
increase of $101.2 million, or 9.6 percent, over estimated 1992 personnel
expenses (table 3.2). Nonpersonnel
expenses (primarily for building and
automation projects) are budgeted at
$572.5 million, an increase of $25.0 million, or 4.6 percent.
The following two sections discuss
major initiatives and the budget objective for the Reserve Banks in 1993.
Subsequent sections provide details for
the four operational areas as well as
objects of expense, capital outlays, and
long-term trends. Appendix A gives
more information on capital outlays,
special projects, and other special categories of expense. Appendix D gives
additional data by District and by
operational area.
Major Initiatives
1. The budget for the Automation Consolidation special project includes $55.2 million for
excess capacity at FRAS (Federal Reserve Automation Services, the name given the consolidated
computer operations located at New York, Richmond, and Dallas). The remainder of the Automation Consolidation budget ($17.9 million) is being
contributed by the Reserve Banks. For more
information on FRAS, see chapter 4.
The 1993 Reserve Bank budgets provide
$66.9 million for Bank initiatives
(table 3.3), including the following:
• Increased expenses for postemployment medical and life insurance benefits
(FASB 106)
2. The term average number of personnel
describes levels and changes in employment at the
Reserve Banks. ANP measures the number of
employees in terms of full-time positions for the
time period. For instance, a full-time employee
who starts work July 1 counts as 0.5 ANP for that
calendar year; two half-time employees who start
January 1 count as 1 ANP.
3. For presentation purposes, FRAS staff is
included with the Automation Consolidation special project. Special project staff comprises 2 ANP
for the Check Image Processing special project
and 298 ANP for the Automation Consolidation
special project.
24
Annual Report: Budget Review,
1992-93
• Expanded efforts in supervision and
regulation
• Enhanced automation capabilities
• Increased expenses for facility
projects at head office and Branch
buildings
• Enhanced check, cash, and fiscal
operations.
The projected increase for postemployment benefits, $35.7 million, is due
to implementation of Financial Accounting Standard 106 (FASB 106), which
requires that organizations accrue
expenses for funding the postretirement
medical and life insurance benefits of
their current employees and retirees.
Expanded efforts in supervision and
regulation are projected to increase
expenses $21.3 million and to add
300 ANP. Approximately half the
amount, $10.8 million and 135 ANP, will
go for expansion of New York's supervision and regulation activities, primarily a result of mandates contained in the
Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA).
Automation initiatives are budgeted
at $6.1 million. The largest portion of
this amount is related to expenses for the
new Fednet communications system.4 In
addition, Boston, Cleveland, and San
Francisco will be adding office automation capabilities. Partially offsetting
expenditures for automation initiatives
are savings associated with the impact
of automation consolidation at the
Reserve Banks.
4. Fednet is a registered trademark of the
Federal Reserve System.
Table 3.1
Expenses and Employment at the Federal Reserve Banks, 1992 and 19931
Category
1992
estimate
Expenses (millions of dollars)
Operations2
Special projects
Total
Employment (average number
of personnel)3
Operations2
Special projects
Total
Change
1993
budget
1,596.3
32.6
1,628.9
1,722.5
80.3
1,802.8
24,014
106
24,014
24,286
300
24,586
Amount
Percentage
126.2
47.7
173.9
7.9
10.7
272
194
466
1.1
1.9
1. Excludes capital oudays.
2. Includes support and overhead (see appendix D, table D.3, note 1, for definitions).
3. See text note 2 for definition of average number of personnel.
Table 3.2
Operating Expenses of the Federal Reserve Banks, by Object, 1991-931
Millions of dollars, except as noted
Object
Personnel
Nonpersonnel
Total
1992
estimate
1993
budget
967.7
526.2
1,048.8
547.5
1,493.9
1,596.3
1991
actual
Percentage change
1991 to 1992
1992 to 1993
1,150.0
572.5
8.4
4.0
9.6
4.6
1,722.5
6.9
7.9
1. Includes the costs of support and overhead (see appendix D, table D.3, note 1, for definitions).
Federal Reserve Banks
Facility projects account for $5.8 million in the 1993 budget. The year-overyear impact of the East Rutherford
Operations Center (EROC), combined
with relocation of operations of the
Cranford check processing center to
EROC, will increase New York's
expenses by $2.2 million. New York has
been able to keep increases associated
with EROC to a minimum by implementing operating efficiencies, which have
allowed for a reduction of 45 ANP in
1993. As an interim solution to its
building space limitations, Atlanta will
lease additional space in 1993, at a cost
of $1.7 million. Dallas has budgeted an
additional $1.1 million for operating
costs associated with its new building,
and Minneapolis has included $0.4 million, primarily for taxes on the land for
its new building.
Initiatives in the currency area are
adding $4.0 million to the 1993 budget.
Five Districts have budgeted a total of
$2.7 million for new cash-processing
machines; New York expects to receive
Table 3.3
Expenditures for Major Initiatives
of the Federal Reserve Banks, 1993
Initiative
FASB 1061
Supervision and regulation . . .
Automation projects
Facility improvements
Currency initiatives
Fiscal initiatives
Enhanced check operations . . .
Productivity and operational
improvements
Early retirement
programs
Total
Millions
of dollars
Percentage
of 1993
operating
budget
35.7
21.3
6.1
5.8
4.0
3.1
1.7
2.2
1.3
-8.9
-.6
-1.9
-.1
66.9
4.2
126.2
7.9
.4
.4
.3
.2
.1
MEMO
Increase in total operating
expenses, 1992 estimate
to 1993 budget
1. Financial Accounting Standard 106.
25
ten machines during 1993, with associated maintenance and depreciation
costs of approximately $2.0 million. In
addition, Philadelphia, Cleveland, and
San Francisco are projecting increased
costs related to several cash automation
projects.
Fiscal initiatives have added $3.1 million to the Reserve Banks' total 1993
budget. A large share of this amount is
attributable to a Treasury Department
decision in 1992 to consolidate savings
bond operations in the Federal Reserve
System. Five Districts—New York,
Cleveland, Richmond, Minneapolis, and
Kansas City—were designated processing sites. The consolidation of operations, including original issue, servicing,
and direct redemption, is targeted for
completion by 1996. The five host sites
have budgeted approximately $2.6 million to begin preparation for consolidated processing.
Partially offsetting these increases are
initiatives that will result in savings of
$10.8 million. Approximately half the
savings will come from elimination of
cash transportation in Philadelphia
($1.5 million) and San Francisco
($4.2 million). Several Banks anticipate
additional total savings of $3.1 million
from increased productivity and Districtwide consolidation of operations, primarily in the check and automated
clearinghouse (ACH) areas.
1993 Budget Objective
In 1992, the Board of Governors
approved a 1993 Reserve Bank budget
objective that provided for a 4.4 percent
increase in ongoing general operating
expenses over total 1992 operating
expenses. The Board also anticipated
that expenses for budget objective
factors, including several Systemwide
efforts and District-specific building and
equipment projects, would add 4.0 per-
26
Annual Report: Budget Review, 1989-90
Table 3.4
1993 Budget Objective and Budget of the
Federal Reserve Banks1
Percentage change from 1992 expenses
Item
Budget
objective
General operating expenses
Budget objective factors
Budget
4.4
3.5
4.0
4.4
2.4
2.8
10.8
10.7
MEMO
Special projects
Total
1. See data on expenses in table 3.1.
centage points to the 1993 budget.
Table 3.4 compares the 1993 budget
objective with the 1993 budget, both
expressed in terms of the percentage
increase over 1992 expenses.
The 1993 increase for general operating expenses is 0.9 percentage point less
than the budget objective. The increase
is under the 4.4 percent general operating expense target primarily because of
savings in several Districts that were not
included in the objective. Elimination of
the cash transportation service by Philadelphia and San Francisco ($5.7 million), operational improvements, primarily in ACH, by several Districts
($1.3 million), and smaller-thananticipated increases in shipping rates
($2.8 million) account for a significant
portion of the underrun. Early retirement
programs in Cleveland and Minneapolis
account for an additional $1.9 million in
savings.
The increase of $69.8 million for
budget objective factors is $5.0 million,
or 0.4 percentage point, above the target
established by the Board. Budgeted
expenses for most of the factors vary
only slightly from the budget objective,
but the increase for supervision and
regulation is $8.2 million higher than
anticipated. This budget factor took into
consideration only the salaries and benefits associated with expanded responsibilities mandated by the FDICIA,
whereas the budget includes not only
salaries and benefits, but also related
expenses such as travel, training, and
equipment. In addition, salary expenses
are higher than had been anticipated in
the budget objective, as Districts have
been able to hire more experienced
supervision and regulation staff.
Excluded from the 1993 budget
objective was the projected increase of
$50.3 million for transition costs for the
Automation Consolidation special
project. Also excluded were projected
lower expenditures for the Check Image
Processing and Currency Authentication
Systems special projects ($1.2 million
and $1.4 million decrease respectively).
The net effect of these special projects is
an increase of $47.7 million over estimated 1992 expenses.
Table 3.5
Operating Expenses of the Federal Reserve Banks, by Operational Area, 1991-93
Thousands of dollars, except as noted
Operational area
Monetary and economic policy
Services to the U.S. Treasury
and other government agencies
Services to financial institutions
and the public
Supervision and regulation
Total
1991
actual
1992
estimate
1993
budget
Percentag e change
1991 to 1992 1992 to 1993
106,699
110,531
119,619
3.6
8.2
169,483
181,359
196,747
7.0
8.5
980,379
237,369
1,027,642
276,745
1,084,884
321,249
4.8
16.6
5.6
16.1
1,493,930
1,596,277
1,722,499
6.9
7.9
Federal Reserve Banks
Operational Areas
Tables 3.5 and 3.6 summarize Reserve
Bank expenses and employment in each
of the four operational areas. Tables 3.7
through 3.10 give details for each area.
Monetary and Economic Policy
The 1993 budget for this operational
area is $9.1 million, or 8.2 percent,
larger than estimated 1992 expenses.
The increase reflects a staff increase of
9 ANP (1.2 percent), merit pay increases, greater expenses associated with
FASB 106, and increased costs for
equipment and support associated with
automation initiatives. The staff increase, occurring primarily at the Rich-
27
mond, St. Louis, Kansas City, and
Minneapolis head offices, reflects the
full-year effect of staff hired in 1992 to
assist with automation initiatives, report
monitoring, and data collection; the
full-year effect of economists hired
during 1992 to fill vacancies; and the
planned hiring of two additional economists in 1993.
Services to the U.S. Treasury and
Other Government Agencies
The 1993 budget for services to government agencies is $15.4 million, or
8.5 percent, higher than estimated 1992
expenses. Staffing levels are expected to
decline by approximately 15 ANP. The
Table 3.6
Employment at the Federal Reserve Banks, by Activity, 1991-93
Average number of personnel, except as noted1
Activity
Operational areas
Monetary and economic policy
Services to the U.S. Treasury
and other government agencies
Services to financial institutions
and the public
Supervision and regulation
Support and overhead2
Support
Overhead
Total
1991
actual
1992
estimate
1993
budget
Percentage change
1991 to 1992 1992 to 1993
784
778
787
-.8
1.2
1,870
1,838
1,822
-1.7
-.9
9,044
2,343
8,966
2,629
8,723
2,929
-.9
12.2
-2.7
11.4
4,629
4,924
4,780
5,025
4,781
5,244
3.3
2.1
.0
4.4
23,594
24,014
24,286
1.8
1.1
1. See text note 2 for definition of average number of personnel.
2. See appendix D, table D.3, note 1, for definitions.
Table 3.7
Expenses of the Federal Reserve Banks for Monetary and Economic Policy, 1991-93
Thousands of dollars, except as noted
Service
Economic policy determination
Open market trading
Total
Percentage change
1991
actual
1992
estimate
1993
budget
86,775
19,923
89,572
20,960
97,769
21,851
3.2
5.2
9.2
4.3
106,699
110,531
119,619
3.6
8.2
1991 to 1992 1992 to 1993
28
Annual Report: Budget Review, 1989-90
budget increase is due mainly to costs
associated with the project to consolidate savings bond operations and to
higher salaries and benefits costs. In
addition, the full-year effect of Regional
Delivery System implementation will
add 25 ANP. However, this increase will
be more than offset by reductions in
staff for other savings bonds services
(15 ANP) as well as in the government
accounts (10 ANP), centrally provided
Treasury and agency services (8 ANP),
and other Treasury issues (7 ANP)
services.
Services to Financial Institutions
and the Public
Expenses for this operational area, which
encompasses both priced and nonpriced
services, are budgeted to increase
$57.2 million, or 5.6 percent, in 1993.
Table 3.8
Expenses of the Federal Reserve Banks for Services to the U.S. Treasury
and Other Government Agencies, 1991-93
Thousands of dollars, except as noted
Service
Savings bonds
Consolidated operations-savings bonds . . .
Other Treasury issues
Consolidated operations-other Treasury
issues
Centrally provided Treasury
and agency services
Government accounts
Food coupons
Other
Total
Percentage change
1991
actual
1992
estimate
1993
budget
36,240
23,323
15,457
33,912
31,713
16,970
36,648
35,325
17,585
-6.4
36.0
9.8
8.1
11.4
3.6
1,224
1,241
1,323
1.4
6.6
22,425
26,518
18,875
25,422
23,137
28,217
19,533
26,637
24,555
30,869
21,150
29,293
3.2
6.4
3.5
4.8
6.1
9.4
8.3
10.0
169,483
181,359
196,747
7.0
8.5
1991 to 1992 1992 to 1993
Table 3.9
Expenses of the Federal Reserve Banks for Services to Financial Institutions
and the Public, 1991-93
Thousands of dollars, except as noted
Service
1991
actual
1992
estimate
1993
budget
Percentage change
1991 to 1992 1992 to 1993
Currency
Coin
Special cash
Commercial check
Other check
Funds transfer
Automated clearinghouse
Book-entry securities transfers
Definitive securities safekeeping
and noncash collection
Loans to members and others
Public programs
Other
141,890
24,474
14,379
482,742
28,084
69,639
80,712
34,063
158,413
24,459
12,433
503,786
30,250
66,866
88,591
34,455
172,226
26,105
6,497
531,015
33,687
72,330
93,446
35,749
11.6
-.1
-13.5
4.4
7.7
-4.0
9.8
1.1
8.7
6.7
-47.7
5.4
11.4
8.2
5.5
3.8
14,455
16,099
47,915
25,926
13,520
16,580
51,934
26,358
11,931
18,248
56,757
26,895
-6.5
3.0
8.4
1.7
-11.7
10.1
9.3
2.0
Total
980,379
1,027,642
1,084,884
4.8
5.6
Federal Reserve Banks
Staffing levels will decrease by 243
ANP, mainly in commercial check
(118 ANP), automated clearinghouse
(55 ANP), and noncash collection
(38 ANP) operations.
The commercial check service
accounts for nearly half the expenses
budgeted for this operational area and
employs 5,346 ANP. The anticipated
increase in expenses—$27.2 million,
or 5.4 percent over the estimated 1992
level—is due mostly to higher salary
and benefits expenses resulting from
merit pay increases, FASB 106, and
higher costs for equipment and software
intended to improve operations. Staffing
levels for this service are expected to
decline by 118 ANP, or 2.2 percent,
owing to continued automation and
downsizing of the check adjustments
function, reductions in adjustment backlogs, and continued improvements in
processing return items, including
increased intermingling of forward collection and return items. The volume of
commercial checks is expected to increase 0.5 percent, and unit cost is
budgeted to increase 4.4 percent.
Expenses for the currency service are
expected to increase $13.8 million, or
8.7 percent, mainly because of the
introduction of the ISS 3000 cashprocessing machines, implementation of
counterfeit detectors and materials-
29
handling systems, and efforts to manage
larger volumes. Higher salary and
benefits expenses due to FASB 106 and
merit pay increases will also contribute
to the increase over estimated 1992
expenses. Staffing levels will increase
by 1 ANP.
Expenses for the funds transfer service are expected to increase $5.5 million, or 8.2 percent, primarily because
of higher data communications costs,
reflecting an increase in Fednet costs.
However, staffing will decrease by
10 ANP, or 6.5 percent, mainly because
of continued conversion of off-line
customers to on-line status. Volume is
expected to increase 4.7 percent, and
unit cost is projected to increase
3.3 percent.
The budget for the automated clearinghouse service is increasing $4.9 million, or 5.5 percent, mainly because of
higher data communications costs, reflecting higher communications costs,
higher costs for the ACH system project
and the Automation Consolidation special project, and higher overhead costs.
Staffing is expected to decrease by 55
ANP, or 16.3 percent, mainly because of
District efforts to consolidate processing
at head offices and efficiencies from
migration to an all-electronic environment. Total ACH volume is projected to
increase 12.0 percent in 1993, and the
Table 3.10
Expenses of the Federal Reserve Banks for Supervision and Regulation, 1991-93
Thousands of dollars, except as noted
Service
Supervision of District
financial institutions
Administration of laws and regulations
related to banking
Studies of banking and financial
market structures
Total
Percental e change
1991
actual
1992
estimate
1993
budget
150,353
182,763
219,945
21.6
20.3
75,554
80,073
86,379
6.0
7.9
1991 to 1992 1992 to 1993
11,462
13,909
14,925
21.3
7.3
237,369
276,745
321,249
16.6
16.1
30
Annual Report: Budget Review, 1989-90
increase is expected to contribute to a
5.8 percent decrease in unit cost.
Supervision and Regulation
The 1993 budget increase for this
operational area of $44.5 million, or
16.1 percent, over estimated 1992
expenses reflects a staff increase of
300 ANP, increases in merit pay and
postemployment benefits (FASB 106),
and additional expenses for travel, training, equipment (primarily laptop computers), and overhead. The staff increase
is the result of expanded supervisory
responsibilities mandated by the
FDICIA, including requirements related
to supervision of foreign banks and the
monitoring of compliance with
consumer-protection legislation such as
truth in savings. The act increases the
frequency of examinations for many
institutions and reduces the flexibility to
conduct limited-scope examinations.
Objects of Expense
Personnel expenses—officer and employee salaries, other compensation to
personnel, and retirement and other
benefits—account for 66.8 percent of
Reserve Bank 1993 operating expenses.
The 1993 budget for personnel is 9.6 percent greater than estimated 1992
expenses (table 3.11).
Salaries and other personnel expenses, which account for approximately 52 percent of budgeted 1993
operating expenses, are expected to be
$51.0 million, or 6.1 percent, greater
than estimated 1992 expenses. Salaries
are expected to increase $50.8 million,
or 6.2 percent. Merit pay increases
totaling $35.9 million account for a
large portion of the increase. Also
contributing to the rise in expenses are
promotions, reclassifications, structure
adjustments, and staffing level increases.
The increases are partially offset by
Table 3.11
Operating Expenses of the Federal Reserve Banks, by Object, 1991-93
Thousands of dollars, except as noted
Object
Percentage change
1991
actual
1992
estimate
1993
budget
80,577
689,843
12,611
184,660
967,691
84,037
741,354
15,585
207,775
1,048,751
88,778
787,461
15,775
257,957
1,149,971
4.3
7.5
23.6
12.5
8.4
5.6
6.2
1.2
24.2
9.6
54,577
166,125
32,734
88,175
32,817
132,960
-36,946
55,799
526,239
54,267
176,001
34,024
86,160
36,193
139,007
-40,009
61,885
547,528
54,987
187,942
32,288
81,037
39,106
153,375
-44,877
68,672
572,530
-.6
5.9
3.9
-2.3
10.3
4.5
8.3
10.9
4.0
1.3
6.8
-5.1
-5.9
8.0
10.3
12.2
11.0
4.6
1,493,930
1,596,278
1,722,499
6.9
7.9
1991 to 1992 1992 to 1993
PERSONNEL
Officers' salaries
Employees' salaries
Other personnel1
Retirement and other benefits
Total personnel
NONPERSONNEL
Forms and supplies
Equipment
Software
Shipping
Travel
Buildings
Recoveries
All other2
Total nonpersonnel
Total
1. Expenses for certain contractual arrangements, and miscellaneous personnel expenses.
2. Communications, fees, contra-expenses, shared costs distributed and received,
excess capacity, and other.
Federal Reserve Banks
short-term position vacancies (lag) and
lower overtime expenses.
Retirement and other benefits expenses, which account for 15.0 percent
of budgeted 1993 operating expenses,
are expected to be $50.2 million, or
24.2 percent, greater than estimated
1992 expenses, primarily because of
FASB 106; without the effect of FASB
106, the increase would be $14.5 million, or 7.0 percent. Also contributing to
the increase are the continued escalation
of hospital and medical costs, a rise in
Social Security taxes, and increased
workers compensation insurance costs.
Nonpersonnel expenses, which account
for 33.2 percent of budgeted 1993
operating expenses, are projected to
increase 4.6 percent over estimated 1992
expenses.
Equipment expenses are expected to
increase 6.8 percent, accounting for
10.9 percent of budgeted 1993 operating
expenses. Rentals are increasing $4.2 million, or 19.4 percent, owing to expansion of the all-electronic ACH network,
rental of high-speed circuits required for
the Fednet system, and the increased
cost of leased lines.
Shipping expenses are projected to be
5.9 percent less than estimated 1992
expenses, accounting for 4.7 percent of
budgeted 1993 operating expenses. The
decrease is due primarily to the consolidation of noncash operations in three
Districts and the elimination of cash
transportation services in two Districts.
Building expenses, which account for
8.9 percent of budgeted 1993 operating
expenses, are expected to increase
10.3 percent in 1993, owing to higher
real estate taxes and the full-year effect
of recently completed capital projects in
a number of Districts. The building
projects in New York (EROC) and
Dallas contribute heavily to the increase.
Also adding to the increase is a rise in
rental expenses in Atlanta.
31
Recoveries are budgeted to increase
$4.9 million, or 12.2 percent, in 1993.
Anticipated recoveries associated with
rent and fees charged to FRAS by host
Banks account for $4.2 million.
"Other" nonpersonnel expenses are
budgeted to increase $6.8 million over
estimated 1992 expenses, accounting for
4.0 percent of 1993 budgeted operating
expenses.5 The increase is due essentially to two factors related to FRAS
operations: Banks will be charged for
the use of FRAS and will share in the
costs incurred by the host sites. The
$26 million increase related to FRAS
operations is partly offset by a $14.5 million reduction for excess capacity (the
amount Banks charge to the special
project).
Foreign travel expenses, at $2.8 million (out of a total travel budget of
$39.1 million), account for only 0.2 percent of budgeted 1993 operating expenses, approximately the same level
as in 1992. Examiner foreign travel,
budgeted at $1.7 million, is declining
0.5 percent. Foreign travel expenses for
Reserve Bank presidents and first vice
presidents total $172,000, a decrease
of 19.9 percent from estimated 1992
expenses; of this amount, $109,600 is
for New York, primarily for that District's participation in the work of the
Bank for International Settlements.
Capital Outlays
Capital outlays at the Reserve Banks are
budgeted at $265.7 million, an increase
of $31.4 million, or 13.4 percent, over
5. The budget for "other" nonpersonnel expenses reflects automation consolidation accounting procedures developed by a System group.
The procedures separate expenditures for automation consolidation from expenditures for ongoing
operations and treat FRAS as a separate entity.
32
Annual Report: Budget Review, 1989-90
estimated 1992 expenses. FRAS capital
outlays are projected to be $72.6 million, a decrease of $34.1 million, or
32 percent, from estimated 1992 outlays. Capital outlays including FRAS
are budgeted at $338.3 million, a decrease of $2.7 million, or 0.8 percent
(table 3.12).
Significant increases in Reserve Bank
outlays result from development of
the Fednet communications system and
the acquisition and installation of new
ISS 3000 cash processors. Offsetting
these increases are decreases resulting
from completion of two major building
projects, Dallas's head office building
and New York's East Rutherford Operations Center.
Outlays for data processing and data
communications equipment in 1993 are
budgeted at $103.9 million, approximately 39 percent of total capital outlays. Approximately one-third of these
outlays ($33.7 million) are for equipment for Fednet. Two components of the
Fednet project that were included in the
1992 budget have been deferred until
1993, and FRAS's requirements for
Fednet are greater than anticipated.
Excluding Fednet, the 1993 budget for
data processing and data communications equipment is approximately 13 percent less than estimated 1992 expenses.
Other major outlays in this category for
1993 include $16.0 million for check
reader-sorters in several Districts;
$12.7 million for central processing
units, primarily for Unisys Check Processors in Atlanta ($4.1 million) and
Chicago ($2.9 million) and computer
upgrades in New York ($2.6 million);
and $12.7 million for new personal
computer workstations in all Districts.
FRAS-related data processing and
data communications equipment outlays are budgeted at $70.6 million in
1993. This includes three new central
processing units ($17.2 million), disks
to meet additional storage requirements
($37 million), two new tape drives
($3.5 million), channel extenders
($3.2 million), and communication controllers ($4.3 million).
Purchases of furniture and other equipment are budgeted at $67.3 million,
about 25 percent of total capital outlays.
About one-third of this amount
($20.8 million) will go for ISS 3000
cash processors, to be installed at
Boston, New York, Richmond, Chicago,
Table 3.12
Capital Outlays of the Federal Reserve Banks, by Class of Outlay, 1991-93
Thousands of dollars, except as noted
Class of outlay
Data processing and data
communications equipment1
Buildings
Furniture, furnishings,
and fixtures
Other equipment
Land and other real estate
Building machinery and equipment
Leasehold improvements
Software2
Total
1992
estimate
1993
budget
64,808
134,333
172,536
63,556
174,584
68,912
13,103
18,328
3,315
4,874
1,194
27,332
31,887
4,393
24,196
2,360
14,810
23,852
43,417
6,096
12,376
1,880
7,231
108.6
74.0
32.5
396.4
97.7
-12.7
36.2
38.8
-48.9
-20.3
-51.2
239,954
341,070
338,348
42.1
-.8
1. Includes FRAS capital of $93,195,000 in 1992 and $70,649,000 in 1993.
2. Includes FRAS capital of $13,595,000 in 1992 and $2,000,000 in 1993.
Percentage change
1991
actual
1991 to 1992 1992 to 1993
-52.7
1.2
8.4
Federal Reserve Banks
and San Francisco. Another $7.5 million
will be spent on other cash-related
equipment, including counterfeit detectors in New York ($2.7 million) and
systems for handling cash materials in
Philadelphia, Chicago, and San Francisco ($1.4 million). Atlanta has budgeted $6.0 million for staff relocation
and department renovations, and several
other Districts are planning furniture
purchases, renovation, and remodeling.
Building outlays are budgeted at
$68.9 million, about 26 percent of total
capital outlays. Included are renovation
projects associated with automation consolidation in Richmond ($13.1 million),
New York ($3.3 million), and Dallas
($0.3 million) and preparation of cash
areas for the new ISS 3000 cash
processors ($10.9 million) in several
Districts. Also included are two building
projects, Cleveland's building expansion ($8.7 million) and consulting fees
associated with the planned new facility
for Minneapolis ($7.8 million).
Outlays for land and other real estate
are budgeted at $6.1 million, primarily
for land and related fees for the new
Minneapolis building.
Expenditures on building machinery
and equipment are budgeted at $12.4 million, primarily for UPS (uninterrupted
power supply) and emergency generators at several offices ($5.7 million). The
remaining outlays will allow several
Districts to upgrade or replace existing
machinery and equipment.
Software outlays planned for 1993
total $5.2 million. Philadelphia has
budgeted $2.0 million on behalf of the
seven Districts that constitute the Unisys
Users' Group. In addition, New York
has budgeted $1.5 million for its Market
Data Distribution System to meet the
Bank's need for timely and accurate
market data. FRAS plans software purchases for one additional central processing unit as well as software to meet
33
additional functionality requirements
($2.0 million).
Trends in Expenses
and Employment
Over the ten years ending with the 1993
budget, Reserve Bank expenses have
increased an average of 5.3 percent per
year (chart 3.1). Over the past five years,
the increase has averaged 6.4 percent
per year. Increases in expenses have
been higher since 1987 because of
expanded bank supervision needs and
implementation of the Expedited Funds
Availability Act.
The number of employees at the
Reserve Banks has increased from
22,883 ANP in 1983 to 24,286 ANP in
1993, an increase of 1,403 ANP
(chart 3.2). Since 1983, staffing has
increased in supervision and regulation
(1,067 ANP), check services (461 ANP),
and data processing (350 ANP) owing to
expanded responsibilities in these areas.
Partially offsetting these increases have
been decreased staff in overhead services (345 ANP) resulting from Systemwide efforts to control overhead expenses.
Chart 3.1
Operating Expenses of the
Federal Reserve Banks, 1983-931
Billions of dollars
I
1983
I
I
1
I
I
1988
I
1
I
1. For 1992, estimate; for 1993, budget.
2. Calculated with the GDP price deflator.
I
1993
34
Annual Report: Budget Review, 1989-90
Volume and Unit Costs
Volume for all measured operations is
expected to increase 2.3 percent over
1992 volume, and unit cost is expected
to rise 3.6 percent (table 3.13). Since
1988, volume has increased at an average annual rate of 2.4 percent and unit
cost at a rate of 2.3 percent. The increase
in unit cost expected for 1993 reflects a
rise in unit cost in all areas except ACH.
The commercial check service, the
largest component in the overall index,
expects an increase in volume of 0.5 percent and an increase in unit cost of
4.4 percent. The cash services, the
second largest component, expect an
increase in volume of 4.6 percent and an
increase in unit cost of 3.6 percent.
Table 3.13
V o l u m e and U n i t Costs o f
F e d e r a l R e s e r v e B a n k Services
Percentage change from 1992 to 1993
Service
Volume
Unit cost
2.4
.5
12.0
4.7
-1.2
3.1
4.4
-5.8
3.3
12.6
Cash
4.6
3.6
Fiscal
-.2
7.7
Payments
Commercial check
Automated clearinghouse
Funds transfer
Other checks
Securities and noncash
-2.0
1.4
A l l measured services
2.3
3.6
Because FDICIA, legislation that mandated increased responsibilities for the
Reserve Banks, was passed late in the
budget process, several Districts ex1992 Budget Performance
pected to incur costs not included in
The 1992 Reserve Bank budgets, which their original 1992 budgets. The Banks
were approved in December 1991, to- did increase staff and expenses during
taled $1,596.4 million, an expected
1992 in support of FDICIA, with direct
increase of $94.8 million, or 6.3 percent,
expenses in supervision and regulation
over estimated 1991 expenses. The
$12.0 million greater than originally
Banks now estimate that 1992 expenses
budgeted; in addition, 150 ANP were
were $1,596.3 million, $0.1 million
added for this effort. However, the
under the approved budget. At this
Banks were able to offset this increase.
estimated level of spending, the increase
Six Banks expect to be over their
over the actual 1991 level is 7.0 percent.
approved 1992 budgets. Seven Banks
expect to be within 1.0 percent of their
Chart 3.2
budgets. Two Banks expect overruns of
Employment at the Federal Reserve
more than 1.0 percent—Philadelphia
Banks, 1983-931
(2.0 percent) and Cleveland (1.1 perANP. in thousands
cent). At Philadelphia, the overrun is
due mainly to unusual developments in
check operations: Volume is running
24
14 percent higher than anticipated, and
the Bank has added resources in a
continuing effort to reduce adjustment
23
backlogs. Cleveland's expenses are
expected to be over budget mostly
because of unanticipated expenses for
shared costs and miscellaneous fees.
1993
1988
1983
Three
Banks expect underruns of more
1. For 1992, estimate; for 1993, budget. See text note 2
than 1.0 percent—Boston (1.8 percent),
for definition of ANP.
Federal Reserve Banks
Chicago (2.0 percent), and Dallas
(1.2 percent). At Boston, a greater-thananticipated reduction in real estate taxes
and an unanticipated drop in check
volume are the main reasons for the
underrun. Chicago will be under budget
because of a real estate tax credit. Dallas
expects to pay less tax on its new
building because the appraised value is
much lower than had been anticipated.
Dallas also expects unbudgeted recoveries for rent and fees from FRAS.
•
35
Part II
Special Analysis
39
Chapter 4
Automation Consolidation
In August 1990, the Federal Reserve
Banks and the Board of Governors
endorsed a strategic plan to consolidate
the general-purpose data processing
operations of the twelve Reserve Banks.
The primary objectives of automation
consolidation are improved reliability,
increased control of payment system
risk in a national banking environment,
improved security of the total automation environment, enhanced responsiveness to changing business requirements,
and greater efficiency.
Currently, general-purpose data processing is supported at each Reserve
Bank head office, and contingency
operations are supported at four additional sites. Ultimately, all generalpurpose data processing and contingency operations will be consolidated at
three sites. The three locations selected
as consolidation centers are the Reserve
Bank head offices in Richmond, Virginia, and Dallas, Texas, and the Federal
Reserve Bank of New York's East
Rutherford Operations Center in New
Jersey. The transition to the three consolidation centers is expected to take
place over two years.
The computing architecture is currently decentralized: The twelve Reserve
Banks process critical applications using
virtually identical copies of application
software and operate in virtually identical computing environments. To deliver
national payment services, the Banks
must coordinate service delivery and
interaction between individual payment
applications at each Reserve Bank. This
decentralized approach to delivering
national payment services has intrinsic
limitations that complicate the Federal
Reserve System's tasks of optimizing
service reliability, monitoring the financial positions of depository institutions
operating nationwide, minimizing the
security vulnerability in the Reserve
Banks' automation environment, responding quickly to new business requirements, and improving efficiency.
The implementation of state-of-theart technology to achieve continuous
availability in numerous locations could
be cost prohibitive. With only three
processing sites, the Federal Reserve
can more effectively capitalize on
advanced computer and communications technology to achieve continuous
availability and implement robust
disaster-recovery arrangements designed to make the Federal Reserve's
payment services virtually uninterruptible. Consolidation also simplifies monitoring the financial positions of depository institutions operating nationwide
through the standardization of payment
applications, thus providing Reserve
Banks with vital and timely information
required for controlling payment system
risk. In addition, operating fewer processing facilities reduces the number
of potential security vulnerabilities and
simplifies implementation and maintenance of security safeguards. In terms of
responsiveness to policy requirements
and customer needs, changes requiring
automation support will be easier to
implement at a smaller number of
facilities. Finally, economies of scale
can be achieved by reducing the number
of processing sites. These economies
take the form of savings in staff as well
as savings in processing resources
through reduction of redundant software
needed to operate the mainframe processing environment.
40
Annual Report: Budget Review,
1992-93
Federal Reserve Automation
Services
Following the Board's endorsement of
consolidation of Reserve Bank data
processing resources, Federal Reserve
Automation Services (FRAS) was established to plan the effort, manage the
transition, and operate the consolidation
centers. FRAS reports to the board of
directors of the Federal Reserve Bank of
Richmond, which has delegated general
oversight responsibility to a group of
senior Federal Reserve officials, the
Automation Consolidation Steering
Committee (ACSC). All FRAS assets
are accounted for on the Richmond
Bank's balance sheet; however, FRAS
must submit an independent budget to
the Board of Governors for approval.
A Director of Automation Resources
was appointed in May 1991 to manage
FRAS, and an organizational structure
was developed and approved by the
ACSC. FRAS staff totaled approximately 230 at year-end 1992 and is
projected to peak at 330 during 1994.
Following completion of the transition,
FRAS staffing is projected to stabilize at
approximately 275. The majority of the
positions have been filled by existing
staff from the Federal Reserve Banks.
FRAS is headquartered at the Richmond
Reserve Bank, where the majority of
FRAS's staff is located.
tralized applications that satisfy common central bank and business requirements, and also centralized network
management
• Consolidation center 3 (CC3),
located in Dallas, will support business
applications unique to each Reserve
Bank.
The Federal Reserve believes that an
architecture based on three data centers
is optimal for providing production and
disaster-recovery capabilities. More than
three data centers would add complexity
to the design, diluting the benefits to be
gained from consolidation. Fewer than
three data centers, however, would
reduce the number of disaster-recovery
sites to a level that would limit the
ability to provide adequate redundancy.
Within the three-data-center design, the
electronic payments workload supported
by CC1 is backed-up at CC2; CC3
serves as the secondary backup site in
the event CC2 is activated as the
primary processing site or is unable to
support a CC1 recovery. In addition,
CC2 and CC3 provide mutual disasterrecovery support for the production
workloads supported at each of these
sites (chart 4.2).
Chart 4.1
General Design of Automation Consolidation
Consolidation Strategy and
Process
Consolidation Center 1
East Rutherford
^
(
In the mature automation consolidation
environment, the workload will be distributed among the three consolidation
centers (chart 4.1) as follows:
• Consolidation center 1 (CC1),
located in East Rutherford, will support
electronic payment services
• Consolidation center 2 (CC2),
located in Richmond, will support cen
National
electronic payment
applications
<
Consolidation Center 2
Richmond
Consolidation Center 3
Dallas
/
National
central bank
applications
S
Reserve Bankunique business
applications
Centralized
business
applications
V
y
Automation
Minimizing the risk of disruption to
the payments system is the primary
criterion governing the transition to
automation consolidation. The availability of electronic payment services, in
particular, must not decline during the
transition. In addition, the transition
strategy is designed to provide a relatively rapid transition within reasonable
cost parameters.
A two-phase approach to automation
consolidation is being taken. During the
first phase, the large-dollar funds transfer and book-entry securities transfer
applications will be moved to interim
mainframe processors at CC2, and the
remaining Reserve Bank-unique workloads, including the automated clearinghouse service, will be moved to mainframe processors at CC2 and CC3. After
the workload transfers, the Reserve
Banks will no longer require their
mainframe processors and data storage
devices. They will, however, retain their
peripheral devices, to support all data
input and output functions, and these
devices will be remotely connected to
the consolidation centers using commu-
Chart 4.2
Automation Consolidation Disaster-Recovery
Arrangements
CCl
^^
National
electronic payment
applications
CC2
CC3
f
\
(
CCl primary backup
CC3 primary backup •*
V
)
N
CCl secondary backup
*-
\
CC2 primary backup
/
NOTE. Solid arrows identify primary disaster-recovery arrangements, dashed arrows secondary arrangements.
Consolidation
41
nications equipment. During the first
phase, the Federal Reserve Bank of
New York will migrate only its noncritical district-unique applications to a
consolidation site; its electronic payment services workload is scheduled to
be migrated during 1996.
During the second phase of the
transition, projected to begin during the
third quarter of 1993, new centralized
electronic payment applications and
support applications, such as centralized
accounting and account-balance monitoring, will be installed on a new
processing platform at CCl. The electronic payment applications supported
on the interim mainframes at CC2 will
be converted to the new centralized
applications at CCl. Migration of the
large-dollar payment applications to the
centralized applications at CCl, which
is scheduled to be completed by yearend 1995, will facilitate the removal of
the interim processing platform at CC2
established during the first phase of the
transition.
The second phase of the transition
will also include installation of existing
and new central bank applications at
CC2. To the extent possible, remaining
applications unique to the Reserve
Banks, such as payroll and purchasing,
will be consolidated at CC2 into new
national applications that satisfy business requirements common to all Reserve
Banks; workloads that continue to be
unique to the separate Reserve Banks
are expected to be consolidated at CC3.
In summary, the first phase of automation consolidation facilitates the
timely consolidation of general-purpose
data processing resources while maintaining the continuity of Reserve Bank
automation operations. This strategy
will minimize the risk of disrupting
payment services and will position
Reserve Banks to migrate to the new
payment applications.
42
Annual Report: Budget Review,
1992-93
The second phase of automation
consolidation focuses on centralization
of the payment applications and applications that satisfy common central
bank and individual Reserve Bank business requirements. The second phase
will be accomplished by implementing
new applications that support centralized operations. The new applications
will be installed on a new processing
platform, and the Reserve Bank workloads will be migrated to the new
applications in a controlled fashion.
The transition to consolidated processing will occur over 1992-94 as FRAS
builds and staffs its data centers and the
Reserve Banks continue to operate their
production environments and prepare
them for migration to FRAS. Costs will
be duplicated during the transition as
FRAS builds its capabilities and the
Banks continue to operate separate
production environments. As operating
responsibilities are transferred to FRAS,
Reserve Bank computer resources will
be reduced. During 1994 and 1995,
major software applications will be
redesigned and implemented to operate
in a consolidated environment, allowing
for a reduction of application support
staffs at the Banks. Because of cost
duplication during the transition period,
cost savings are not expected until 1995.
The Reserve Banks are required by
the Monetary Control Act to recover all
direct and indirect costs incurred in
providing Federal Reserve priced services. To maintain price stability, however, the Board has permitted the Banks
to recover certain FRAS transition costs
in future years, if these costs would have
a material effect on prices if recovered
totally in the year incurred. Because of
the significant one-time expenses that
will be incurred from 1992 through
1994 to acquire equipment and to begin
the transfer of operating systems to the
three automation consolidation centers,
the Banks expect to finance a portion of
the expenses for automation consolidation.1 Chart 4.3 shows projected Federal
Reserve automation costs with and
without automation consolidation.
Automation consolidation is expected
to reduce direct data processing costs,
primarily through reductions of Reserve
Bank staff (chart 4.4). To a lesser extent,
cost savings will be realized from the
reduced cost for software, supplies,
travel, and training. Automation consolidation will also reduce the need for
office space at Reserve Banks to support
the automation function, thereby reducing related allocated costs to data
processing. Because of duplication of
equipment during the transition period
and expenses for the interim processing
platform for payment services, it is
expected that cost savings from equipment changes will be not be achieved
during first five to eight years of the
consolidation effort.
Chart 4.3
Projected Federal Reserve Automation
Costs with and without
Automation Consolidation, 1991-99
Millions of dollars
Without consolidation
250
200
150
With consolidation
1991
1995
1999
1. The Reserve Banks must impute finance
charges for any costs that are deferred to future
years. They expect to recover all consolidation
expenses by year-end 1999.
Automation
Table
Table
4.1
Consolidation
43
4.2
F R A S Expenses, b y Object, 1993
F R A S Expenditures and Staff Levels,
1992 a n d 1993
Millions of dollars, except as noted
Millions of dollars, except as noted
Item
Direct expenses
Capital outlays
Average number
of personnel
Object
1992
estimate
1993
budget
Change
21.5
106.8
74.5
72.6
53.0
-34.2
99
296
197
FRAS Budget
FRAS's 1993 budget for direct expenses
of $74.5 million is an increase of
$53.0 million over estimated 1992
expenses (table 4.1). The largest component of the increase ($35.9 million) is
for equipment depreciation costs. Budgeted expenses of $20.6 million for
personnel, an increase of $13.5 million,
are associated with the full-year effect of
1992 hiring, 1993 staff additions, and
associated benefits (table 4.2). Softwarerelated expenses are increasing by
$8.8 million.
Employment is budgeted at 296
average number of personnel (ANP)—
an increase of 197 ANP.2 This large
Chart
4.4
Distribution o f Projected Cost Savings
due to A u t o m a t i o n C o n s o l i d a t i o n , 1999
Software, 12.8%
Office space, 11.5%
Other, 7.7%
Personnel, 68.0%
2. See chapter 3, note 2, for definition of
average number of personnel.
1993
budget
Percentage
of total
20.6
38.4
11.7
1.5
2.3
74.5
28
52
16
2
2
100
Personnel
Equipment
Software
Travel
All other
Total
increase is due to the full-year effect of
1992 hiring, combined with anticipated
staff additions through 1993. Capital
expenditures are expected to be $72.6 million in 1993, down from the estimated
1992 level of $106.8 million.
Objects Of Expense
Personnel expenses comprise officer and
employee salaries and associated retirement and other benefits. Total personnel
costs are budgeted at $20.6 million and
account for 28 percent of FRAS's
budgeted 1993 expenses. The increase is
due to the full-year effect of hires in
1992 and planned additions in 1993.
Benefits are budgeted at approximately
18 percent of salary costs.
Nonpersonnel expenses are budgeted
at $53.9 million. These expenses are
being driven primarily by equipment,
software, and travel requirements.
Equipment expenses are budgeted at
$38.4 million and account for approximately 52 percent of FRAS's 1993
budget. Equipment depreciation, which
accounts for $35.9 million of the equipment expense budget, will be affected
significantly by the timing of the 1993
capital acquisitions. Of the amount
budgeted for depreciation, $12.0 million
is associated with 1993 outlays.
Equipment maintenance expenses are
budgeted at $2.1 million; funds will be
used mainly for central processing units
44
Annual Report: Budget Review, 1992-93
(CPUs) and disk and tape drives. Of the
budgeted maintenance costs, $1.5 million is for equipment purchased during
1992; the remaining $0.6 million is for
maintenance on 1993 acquisitions. Software costs, estimated at $2.9 million in
1992, are budgeted at $11.7 million for
1993, accounting for approximately
16 percent of 1993 spending.
Travel expenses are budgeted at
$1.5 million, an increase of $0.5 million
over 1992 estimated expenses, and
account for 2 percent of FRAS's 1993
budget. Increased travel during the
transition will be necessary as the FRAS
staff assist Reserve Banks in transferring
their workloads to the consolidated
processing environment. The remaining
direct expenses (such as shipping, communications, and materials and supplies)
add $2.3 million and account for 2 percent of FRAS's 1993 expenses.
In addition to the direct expenses
discussed above, FRAS will incur expenses of $7.2 million for office space
and other support provided by the
Reserve Banks during 1993. These
expenses, reported in the Automation
Consolidation System project, will be
shared equally by the twelve Banks.
Capital Outlays
Capital expenditures to establish the
three consolidation centers are expected
to be approximately $200 million
between 1992 and 1995. Capital outlays
for 1993 are budgeted at $72.6 million,
down from estimated 1992 expenditures
of $106.8 million (1992 capital expenditures are estimated to be $2.2 million
below the approved capital budget). The
1992 and 1993 capital budgets are for
hardware and software to equip the
operation sites for centralized data processing, mainly CPUs and disk drives.
Summary
Consolidation represents a fundamental
change in the way the Federal Reserve
supports general-purpose data processing. Consolidation will enable the Federal Reserve to enhance the reliability of
its payment services, provide comparable levels of service to all depository
institutions, enhance disaster-recovery
capabilities, strengthen control of payment system risk, enhance security,
improve responsiveness to change, and
increase efficiency. The Federal Reserve
has adopted a transition strategy that
minimizes the risk of disruption to
payment systems, simplifies and expedites the transition process, and will help
contain the cost of transition.
•
Appendixes
47
Appendix A
Special Categories of System Expense
This appendix discusses System expenses for priced services, capital outlays, special projects, and currency
printing.
Priced Services
The Monetary Control Act of 1980
requires the Federal Reserve to make
available to all depository institutions,
for a fee, certain services that the
Federal Reserve had previously provided without explicit charge and only
to member banks. As the act requires,
the cost of providing these services
includes all direct and indirect costs,
the interest on items credited before
actual collection (float), and the private
sector adjustment factor (PSAF). The
PSAF is the return on capital that
would have been provided and the
taxes that would have been paid had
the services been furnished by a private
business firm.
To meet the requirement for the full
recovery of costs, the Federal Reserve
has developed an annual pricing process
involving a review of Reserve Bank
expenses in addition to the review
required by the budget process. Use of
the budgets is an integral part of the
pricing exercise because most of the
recoverable costs of priced services are
direct and indirect costs as determined
by the budgets. To assist depository
institutions in their planning to provide
or use correspondent banking services,
the Federal Reserve usually sets each
year's prices only once, in the fourth
quarter of the preceding year.
Fees for Federal Reserve services
must be approved by the product director for the respective service, by the
Pricing Policy Committee, and ultimately by the Board of Governors.1 If
fees for any service are set so that the
full recovery of costs is not anticipated,
the Board announces the rationale.
The cost of float is estimated by
applying the current federal funds rate to
the level of float expected to be generated in the coming year. Estimates of
income taxes and the return on capital
are based on tax and financing rates
derived from a model of the fifty largest
U.S. bank holding companies; these
rates are applied to the assets the Federal
Reserve expects to use in providing
priced services in the coming year. 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
materials, supplies, and capital assets);
the imputed assessment for insurance by
the Federal Deposit Insurance Corporation (FDIC) (based on expected clearing
balances and amounts deferred to depository institutions for items deposited for
collection with the Reserve Banks); and
the portion of the expenses of the Board
of Governors that is directly related to
the development of priced services.
The inclusion of all these costs means
the Federal Reserve offers its priced
1. The product directors are the first vice
presidents at selected Reserve Banks with responsibility for day-to-day policy guidance over
specific Systemwide priced services. The Pricing
Policy Committee comprises one governor, the
Board's staff director for Federal Reserve Bank
activities, and presidents of two Reserve Banks,
and the first vice presidents of two other Reserve
Banks.
48
Annual Report: Budget Review,
1992-93
services on a basis comparable with that
in the private sector, and the discipline
of the market ensures that the prices
charged will be no higher than necessary.
Calculation of the PSAF for 1993
In 1992 the Board approved a 1993
private sector adjustment factor for
Reserve Bank priced services of
$91.4 million, an increase of $11.5 million, or 14.4 percent, over the PSAF of
$79.9 targeted for 1992.
Asset Base
The estimated value of Federal Reserve
assets to be used in providing priced
services in 1993 is $10,483.5 million
Table A. 1
Pro Forma Balance Sheet for Federal Reserve Priced Services, 1992 and 19931
Millions of dollars
Item
1992
1993
ASSETS
Short-term assets
Imputed reserve requirement on clearing balances
Investment in marketable securities
Receivables2
Materials and supplies2
Prepaid expenses2
Items in process of collection
372.0
2.728.0
32.7
5.6
11.2
2.868.1
6,017.6
Total short-term assets
Long-term assets
Premises23
Furniture and equipment2
Leasehold improvements and long-term prepayments2
Capital leases
534.8
5,465.2
32.6
5.4
9.3
3,826.4
341.0
139.2
33.9
.1
Total long-term assets
Total assets
9,873.7
359.0
201.0
49.8
.0
514.2
609.8
6,531.8
10,483.5
LIABILITIES
Short-term liabilities
Clearing balances and balances arising
from early credit of uncollected items
Deferred-credit items
Short-term debt4
6,017.6
Total short-term liabilities
Long-term liabilities
Obligations under capital leases
Long-term debt4
Total long-term liabilities .
Total liabilities
Equity
4
Total liabilities and equity
1. Data are averages for the year.
2. Financed through the private sector adjustment
factor; other assets are self-financing.
3. Includes allocations of Board of Governors' assets
6,652.4
3,174.1
47.3
3,511.4
2,456.7
49.5
9,873.7
.0
.1
170.4
201.8
170.5
201.8
6,188.1
10,075.5
343.7
408.0
6,531.8
10,483.5
to priced services of $0.3 million for 1992 and $0.4
million for 1993.
4. Imputed figures representing the source of financing
for certain priced-service assets.
Special Categories of System Expense
(table A.l). The value of assets assumed
to be financed through debt and equity
in 1993 is $657.1 million, an increase
of $93.5 million, or 16.6 percent, over
1992 (table A.2). This increase is
primarily the result of assets acquired by
the Federal Reserve for the automation
consolidation initiative.
49
Cost of Capital, Taxes,
and Other Imputed Costs
For 1993, a pretax rate of return on
equity of 8.6 percent is planned. Other
required PSAF recoveries for 1993—
imputed sales taxes, imputed FDIC
insurance assessment, and Board
expenses—total $35.0 million, up from
Table A.2
Derivation of the Private Sector Adjustment Factor (PSAF), 1992 and 1993
Millions of dollars, except as noted
Item
1992
1993
49.5
514.1
563.6
47.3
609.8
657.1
7.9
9.2
10.7
6.2
9.0
8.6
P S A F COMPONENTS
Assets to be financed1
Short-term
Long-term2
Total
Cost of capital (percentp
Short-term debt
Long-term debt
Pretax return on equity4
Weighted average long-term cost of capital
10.2
Capital structure (percent)
Short-term debt
Long-term debt
Equity
61.0
7.2
30.7
62.1
Tax rate (percent)
29.4
29.5
Capital costs 5
Short-term debt
Long-term debt
Equity
Total
3.9
15.7
36.8
56.4
2.9
18.2
35.3
56.4
Other costs
Sales taxes
Assessment for federal deposit insurance
Expenses of Board of Governors
Total
10.2
11.4
1.9
23.5
11.4
21.3
2.3
35.0
Total PSAF recoveries
Millions of dollars
As a percentage of capital ..
As a percentage of expenses
79.9
14.2
13.2
91.4
13.9
15.1
30.2
REQUIRED P S A F RECOVERIES
1. The asset base for priced services is directly
determined.
2. Total long-term assets less capital leases that are
self-financing.
3. All short-term assets are assumed to be financed by
short-term debt. Of the total long-term assets, 33 percent
are assumed to be financed by long-term debt and
67 percent by equity. The data are average rates paid by
the bank holding companies included in the sample.
4. The pretax rate of return on equity is based on
average after-tax rates of return on equity, adjusted by the
effective tax rate to yield the pretax rate of return on
equity for each bank holding company for each year.
These data are then averaged over the five years 1987-91
to yield the pretax return on equity for use in the PSAF.
5. The calculations underlying these data use the dollar
value of assets to be financed, divided as described in
note 3, and the rates for the cost of capital.
50
Annual Report: Budget Review, 1992-93
$23.5 million approved for 1992 (table
A.2). The $11.5 million increase in
PSAF recoveries is attributable to a
higher premium rate and higher clearing
balances held by depository institutions
with Reserve Banks.
Capital Outlays
Board for further review and approval.
The Board of Governors reviews capital
expenditures for the Board.
Special Projects
For 1993 the Board of Governors has
approved three special research and
development projects intended to provide long-range benefits to the Federal
Reserve and the banking industry.
Because spending on such projects is
relatively high and short-term, the Federal Reserve accounts for these expenditures separately from its operating
expenses.
In accordance with generally accepted
accounting principles (GAAP), the Federal Reserve System depreciates the cost
of fixed assets over their estimated
useful lives. In the federal government,
where no requirement for depreciation
accounting exists, the cost of fixed
assets is typically recorded as an
expense at the time of purchase. However, the Policy and Procedures Manual Check Image Processing
for Guidance of Federal Agencies of the In 1988, the Conference of First Vice
General Accounting Office, which gov- Presidents of the Reserve Banks approved
erns accounting procedures in the fed- the concept of testing digital technoloeral government, specifies in title 2 the gies to record images for use in processuse of depreciation accounting for busi- ing checks. The application that proness types of operations and for activi- vided the strictest parameters was
ties that recover costs from reim- archiving information about government
bursements or user charges. Certain check payments for the Department of
activities of the Federal Reserve meet the Treasury. This application involves
both these criteria. Under GAAP, the storage of a large amount of data and
cost of acquiring an asset that is retrieval of high-quality data, requireexpected to benefit an entity over future ments similar to those for processing
periods should be allocated over those return items. Consequently, it was deperiods. Such treatment allows a more cided to explore both applications to derealistic measurement of operating termine the feasibility of the technology.
performance.
Since the inception of the Check
The Banks capitalize and depreciate Image Processing special project, each
all assets that cost $1,500 or more; they major initiative has been a first-of-itscan either capitalize or expense assets kind effort to learn what image technolcosting less. The capitalization guideline ogy can do and how it can be applied to
for the Board is $1,000.
the processing and collection of checks.
The Banks maintain a multiyear plan The areas of high-, low-, and mediumfor capital spending. The Board, in turn, speed check processing, standards for
requires the Banks to budget annually the interchange of check images, and
for capital outlays by capital class to calibration of check image quality have
estimate the effect of total operating and been explored. During 1993 the basic
capital spending. During the budget research in these areas will be conyear, the Banks must submit proposals cluded, bringing the Federal Reserve
for major purchases of assets to the and the banking industry to the thresh
Special Categories of System Expense
old of a multiyear effort to apply check
image technology to interbank functions. The $3.1 million 1993 budget will
make it possible to begin implementing
high-speed image archival applications
in processing government checks, postal
money orders, and savings bonds and
other areas. Including budgeted 1993
expenses, expenditures on this special
project to date total $16.7 million.
Development of Currency
Authentication Systems
In 1989, the Federal Reserve initiated a
special project for development of an
Optical Counterfeit Detection System
(OCDS). Later that year the project
was renamed Development of Currency
Authentication Systems because research efforts included development not
only of an OCDS, but also of other
authentication alternatives.
OCDS is an effort to improve
counterfeit-detection capabilities that will
enhance the currency service provided
to financial institutions and the public.
Other activities include development of
both long- and short-term authentication
alternatives that are expected to improve
the Federal Reserve's ability to detect
counterfeit currency. All these efforts
should produce counterfeit-detector devices to be placed on the Federal Reserve's high-speed currency-processing
equipment.
The 1993 project budget is $4.2 million. Including 1993 budgeted expenses,
expenditures on this special project to
date total $20.0 million.
Automation Consolidation
In 1992, the Federal Reserve System
began to incur expenses for the Automation Consolidation special project. The
project will result in consolidation of all
mainframe computer operations at three
data centers within the System. During
51
1992, the project focused on developing
a project plan and staffing and equipping
the data centers. In 1993, emphasis will
be on the conversion of District workloads, specifically on two major project
milestones: transition of Richmond and
Dallas District mainframe applications
and migration of District-unique workloads from Atlanta, St. Louis, and
Kansas City; and transition of District
Electronic Payment Systems (EPS)
images to the production environment
by November 1993. The 1993 project
budget is $73.0 million.
Currency Printing
The Bureau of Engraving and Printing
produces currency; the Federal Reserve
Banks put it into circulation through
depository institutions and destroy it as
it wears out. New currency is printed to
replace worn notes and to accommodate
increases in the demand for circulating
currency (table A.3). Notes are also
required for inventories held by the
Reserve Banks to meet changes in
demand.
Table A.3
Currency in Circulation, New Notes Issued,
and Notes Destroyed, 1992 Estimate
Millions of pieces
Dollar
denomination
Notes
in
circulation1
New
notes
paid
out2
Notes
destroyed2
1
2
5
10
20
50
100
5,121
449
1,238
1,220
3,432
722
1,687
3,401
18
835
746
1,682
344
424
3,515
4
898
838
1,754
401
286
Total
13,869
7,450
7,696
1. As of September 1992.
2. Based on actual levels through October and
expected levels for November and December. Notes paid
out do not include additions to inventory at the Reserve
Banks.
52
Annual Report: Budget Review,
1992-93
The Federal Reserve Act stipulates
that the costs of producing currency, as
well as the costs of putting it into
circulation and destroying it, be assumed
by the Federal Reserve System (table
A.4). To minimize the number of new
notes ordered and the cost of their
printing, the Board consults with the
Bureau of Engraving and Printing to
ensure that it uses efficient methods,
maintains System guidelines on the
quality of notes, and sees that Reserve
Banks do not destroy notes prematurely.
The Board and the Banks also monitor
all related costs, such as the costs of
transporting and packaging the currency.
Table A.4
Costs to the Federal Reserve of New Currency, 1991-93
Millions of dollars, except as noted
1991
actual
1992
estimated
1993
budget
Percentage
change,
1992 to 1993
Printing1
Shipping from Washington and western facility
Reimbursement to the Treasury
for issuance and retirement
Other2
253.6
5.6
286.2
5.6
337.5
7.0
17.9
25.0
2.1
2.0
1.3
2.0
.8
.0
-38.5
Total cost of currency
2613
295.1
3473
17.7
Item
1. Based on 8 billion notes in 1991, 8.5 billion notes in 1992, and 9 billion notes in 1993.
2. Includes intrasystem shipment of fit currency, purchase of currency pallets, and shipment of currency pallets to the Bureau of Engraving and Printing.
53
Appendix B
Sources and Uses of Funds
The Federal Reserve System, in accordance with generally accepted accounting principles, accrues income and
expenses and capitalizes acquisitions of
assets whose useful lives extend over
several years (see appendix A).
The System derives its income primarily from earnings on U.S. government securities that the Federal Reserve
has acquired through open market operations, one of the tools of monetary
policy. These earnings account for
approximately 86 percent of current
income (table B.l).
The current expenses of the Reserve
Banks consist of their operating expenses
Table B.l
Income of the Federal Reserve System,
1991 and 1992
Millions of dollars
1991
actual
1992
estimate
U.S. government securities . . .
Foreign currencies
Priced services
Other
25.6
19,262.3
2,499.4
737.5
28.3
6.2
17,336.4
2,122.0
757.1
11.9
Total
22,553.0
20,233.6
Source
and the costs of the earnings credits
granted to depository institutions on
clearing balances held with the Reserve
Banks (table B.2). The Reserve Banks
record extraordinary adjustments to current net income in a profit and loss
account. The primary entries in the
account are for gains or losses on the
sale of U.S. government securities and
for gains or losses on assets denominated in foreign currencies that result
either from the sale of those assets or
from their revaluation at market exchange rates.
The Reserve Banks retain a surplus to
cushion unexpected losses, much as
commercial establishments retain earnings. The Board of Governors requires
that the surplus account at year-end be
equal to the capital paid in by the
member banks. Since the end of 1964,
the Board's policy has been to transfer
to the U.S. Treasury all net income after
paying the statutory dividend to member
banks and the amount necessary to
equate surplus to paid-in capital. The
amount transferred is classified as interest on Federal Reserve notes. Such
payments were $20.8 billion in 1991 and
are estimated to be $16.8 billion in 1992.
54
Annual Report: Budget Review,
1992-93
Table B.2
Distribution of the Income of the Federal Reserve Banks, 1991 and 1992
Millions of dollars
1991
actual
1992
estimate
22,553
20,234
1,265
164
1,300
175
21,124
18,759
496
-959
90
28
Assessments by the Board
Board expenses
Cost of currency
110
261
129
295
Other distributions
Dividends paid to member banks5
Transfers to, or from ( - ) , surplus6
153
228
172
402
20,778
16,774
Item
Current income1
LESS
Current expenses of Reserve Banks
Operating expenses
Costs of earnings credits
2
EQUALS
Current net income
PLUS
3
Net additions to, or deductions from (-), current net income
LESS
4
Cost of unreimbursed Treasury services
EQUALS
Payment to U.S. IVeasury
1. See table B.l.
2. Net of reimbursements due from the U.S. Treasury
and other government agencies. Also reflects reductions
of $83.1 million in 1991 and $141.0 million in 1992 in
credits for net periodic pension cost.
3. This account is the same as that reported under the
same name in the table "Income and Expenses of Federal
Reserve Banks" in the Statistical Tables section of the
Board's Annual Report and includes realized and
unrealized gains on assets denominated in foreign
currencies, gains on sales of U.S. government securities,
and miscellaneous gains and losses.
4. The cost of services provided to the U.S. Treasury
that are reimbursable under agreements with the Treasury
and for which reimbursement is not anticipated.
5. The Federal Reserve Act requires the Federal
Reserve to pay dividends to member banks at the rate of
6 percent of paid-in capital.
6. Each year the Federal Reserve transfers to its
surplus account an amount sufficient to equate surplus to
paid-in capital to provide a reserve against losses.
55
Appendix C
Federal Reserve System Audits
The Board of Governors, each of the
Reserve Banks taken separately, and
the Federal Reserve System as a whole
are all subject to several levels of audit
and review. At each Federal Reserve
Bank, a full-time staff of auditors under
the direction of a general auditor reports directly to the Bank's board of
directors. The Board's Division of Federal Reserve Bank Operations, acting
on behalf of the Board of Governors,
regularly audits the financial operations
of each of the Banks and periodically
reviews all other Bank operations. The
Office of Inspector General (OIG) conducts audits, operations reviews, and
investigations of the programs and
operations of the Board and those
Board functions delegated to the Federal Reserve Banks. The OIG retains an
independent auditor each year to certify
the fairness of the Board's financial
statements and its compliance with
laws and regulations affecting those
financial statements.
General Accounting Office
The 1978 passage of the Federal Banking Agency Audit Act (Public Law
95-320) brought most of the operations
of the Federal Reserve System under
the purview of the General Accounting
Office (GAO). The GAO, which currently has 23 projects in various stages
of completion, since 1979 has completed 102 reports on selected aspects
of Federal Reserve operations (tables
C.l and C.2). The GAO has also
involved the Federal Reserve in about
71 other reviews not directly related to
the System and has terminated 47
others before completion. The reports
are available directly from the GAO.
Table C.l
Active GAO Projects Relating to the Federal Reserve
Subject
Federal tax deposit system
Criminal cases from financial-institution fraud
Debt crisis in less-developed countries
Supervision and examination processes
Financing of multifamily housing
Future banking-industry consolidation
Insider activity at banks
Foreign business structures impeding competition
Asset recovery from financial institution crimes
Regulatory initiatives to stimulate lending
Risk management systems used by depository institutions
Supervision of international banks
Credit card industry
GDP collection
Treasury automated auction system
Secondary mortgage market
Regulatory burdens on depository institutions
Liquidity at commercial banks
Interstate banking and branching in three western states .
Loan loss reserve methodologies
Public affairs and congressional affairs activities
Financial crises
Country risk assessments
Date initiated
4/9/90
11/2/90
1/25/91
3/18/91
4/22/91
5/31/91
10/24/91
2/3/92
2/12/92
2/26/92
4/8/92
5/15/92
6/2/92
7/2/92
7/15/92
8/13/92
8/26/92
9/1/92
9/3/92
9/22/92
10/9/92
10/27/92
11/24/92
56
Annual Report: Budget Review, 1992-93
Table C.2
Completed GAO Reports Relating to the Federal Reserve System
Report
Comparing Policies and Procedures of the Three Bank
Regulatory Agencies
Are OPEC Financial Holdings a Danger to U.S. Banks or the Economy? .
Federal Systems Not Designed to Collect Data on All Foreign
Investments in U.S. Depository Institutions
Considerable Increase in Foreign Banking in United States since 1972 .
Investment Policies, Practices and Performance
of Federal Retirement Systems
Federal Supervision of Bank Holding Companies Needs Better, More
Formalized Supervision
The Federal Reserve Should Assure Compliance
with the 1970 Bank Holding Company Act Amendments
Federal Agencies' Initial Problems with the Right to Financial
Privacy Act of 1978
Internal Auditing Can Be Strengthened in the Federal Reserve System .
Despite Positive Effects, Further Foreign Acquisitions of U.S. Banks
Should Be Limited until Policy Conflicts Are Fully Addressed
Federal Examinations of Financial Institutions: Issues That
Need to Be Resolved
Examinations of Financial Institutions Do Not Assure Compliance
with Consumer Credit Laws
Disappointing Progress in Improving Systems for Resolving
Billions in Audit Findings
An Economic Overview of Bank Solvency Regulation
Federal Reserve Security over Currency Transportation Is Adequate
The Federal Structure for Examining Financial Institutions
Can Be Improved
Response to Questions Bearing on the Feasibility
of Closing the Federal Reserve Banks
Bank Secrecy Act Reporting Requirements Have Not Met
Expectations, Suggesting Need for Amendment
Federal Reserve Could Improve the Efficiency of Bank Holding
Company Inspections
Financial Institution Regulatory Agencies Should Perform Internal Audit
Reviews of their Examination and Supervision Activities
Information on Selected Aspects of Federal Reserve System Expenditures .
Federal Review of Intrastate Branching Can Be Reduced
Despite Improvements, Recent Bank Supervision Could
Be More Effective and Less Burdensome
Issues to Be Considered while Debating Interstate Bank Branching
The Federal Reserve Should Move Faster to Eliminate Subsidy
of Check-Clearing Operations
Information about Depository Institutions' Ancillary Activities Is Not
Adequate for Policy Purposes
Bank Merger Process Should Be Modernized and Simplified
An Analysis of Fiscal and Monetary Policies
Bank Examination for Country Risk and International Lending
Credit Insurance Disclosure Provisions of the Truth-in-Lending Act
Consistently Enforced Except When Decisions Appealed
Survey of Investor Protection and the Regulation
of Financial Intermediaries
Financial Institutions Regulatory Agencies Can Make Better Use
of Consumer Complaint Information
Expediting Tax Deposits Can Increase the Government's
Interest Earnings
Unauthorized Disclosure of the Federal Reserve's
Monetary Policy Decision
Federal Financial Institutions Examination Council Has Made Limited
Progress toward Accomplishing Its Mission
Control Improvements Needed in Accounting for Treasury Securities
at the Federal Reserve Bank of New York
Statutory Requirements for Examining International Banking
Institutions Need Attention
Number
Date
GGD-79-27
EMD-79-45
3/29/79
6/11/79
GGD-79-42
GGD-79-75
6/19/79
8/1/79
FPCD-79-17
8/31/79
GGD-80-20
2/12/80
GGD-80-21
3/12/80
GGD-80-64
GGD-80-59
5/29/80
8/8/80
GGD-80-66
8/26/80
GGD-81-12
1/6/81
GGD-81-13
1/21/81
AFMD-81-27
PAD-81-25
GGD-81-27
1/23/81
2/13/81
2/23/81
GGD-81-21
4/24/81
GGD-81-49
5/21/81
GGD-81-80
7/23/81
GGD-81-79
8/18/81
GGD-82-5
10/19/81
GGD-82-33
GGD-82-31
2/12/82
2/24/82
GGD-82-21
GGD-82-36
2/26/82
4/9/82
GGD-82-22
5/7/82
GGD-82-57
GGD-82-53
PAD-82-45
ID-82-52
6/1/82
8/16/82
8/31/82
9/2/82
GGD-83-3
10/25/82
GGD-83-30
7/13/83
GGD-83-13
8/25/83
GGD-84-14
11/21/83
GGD-84-40
2/3/84
GGD-84-4
2/3/84
AFMD-84-10
5/2/84
GGD-84-39
7/11/84
Federal Reserve System Audits
Table C.2
Continued
Report
Number
Supervisory Examinations of International Banking Facilities
Need to Be Improved
An Examination of Concerns Expressed about the Federal Reserve's
Pricing of Check-Clearing Activities
Difficulties in Evaluating the Effectiveness of the Community
Reinvestment Act
International Coordination of Bank Supervision: The Record to Date . . .
Implementation of the Export Trading Company Act of 1982
Information on Independent Public Accountant Audits
of Financial Institutions
An Analysis of Two Types of Pooled Investment Funds
How the Markets Are Developed and How They Are Regulated
U.S. Banking Supervision and International Supervisory Principles
Financial Institution Regulators' Compliance Examination
The Market's Structure, Risks, and Regulation
Dealer Views on Market Operations and Federal Reserve
Securities Transfer System
Questions about the Federal Reserve's Securities Transfer System
Federal Reserve Board Opposition to Credit Card Interest Rate Limits
Insulating Banks from the Potential Risk of Expanded Activities
The Federal Reserve Response Regarding Its Market-Making Standard
Change in Fees and Deposit Account Interest Rates since Deregulation
An Examination of Views Expressed about Access to Brokers' Services
.
.
.
.
Issues Related to Repeal of the Glass-Steagall Act
Preliminary Observations on the October 1987 Crash
Supervision of Overseas Lending Is Inadequate
Competitive Concerns of Foreign Financial Firms in Japan,
the United Kingdom and the United States
Administrative Expenses at FHLBB and FRB for 1985 and 1986
Government in the Sunshine Act Compliance at Selected Agencies
Trends in Commercial Bank Performance, December 1976-June 1987 ..
U.S. Commercial Banks' Securities Activities in London
Lending to Troubled Sectors
Government Check-Cashing Issues
Conflict of Interest: Abuses in Commercial Banking Institutions
Competitive Fairness Is an Elusive Goal
Independent Audits Needed to Strengthen Internal Control
and Bank Management
Information on the System's Check Collection Service
Oversight of Critical Banking Systems Should Be Strengthened
Activities of Securities of Bank Holding Companies
The Stock, Options, and Futures Markets Are Still at Risk
Update on U.S. Commercial Banks' Securities in London
U.S. Financial Services' Competitiveness under the Single
Market Program
Limited Public Demand for New Dollar Coin or Elimination of Pennies.
Oversight of Automation Used to Clear and Settle Trades Is Uneven . . .
The Government's Exposure to Risks
Office of Inspector General Operations at Financial Regulatory Agencies .
Additional Reserves and Reform Needed to Strengthen the Fund
More Transaction Information and Investor Protection Measures
Are Needed
Issues Relating to Banks Selling Insurance
Implementation of Risk-Based Capital Adequacy Standards
Overview of Six Foreign Systems
Deposit Insurance: A Strategy for Reform
Bank Supervision: Prompt and Forceful Regulatory Actions Needed
Date
GGD-84-65
9/30/84
GGD-85-9A
1/14/85
OCE-86-1
11/4/85
NSIAD-86-40
NSIAD-86-42
2/6/86
2/27/86
GGD-84-44FS
GGD-86-63
GGD-86-26
NSIAD-86-93
GGD-86-94
GGD-86-80BR
4/21/86
5/12/86
5/15/86
7/25/86
8/1/86
8/20/86
GGD-86-147FS
GGD-87-15BR
9/29/86
10/20/86
GGD-87-38BR
GGD-87-35
GGD-87-55FS
GGD-87-70
GGD-88-8
4/7/87
4/14/87
4/21/87
7/13/87
12/18/87
GGD-88-37
GGD-88-38
NSIAD-88-87
1/22/88
1/26/88
5/5/88
NSIAD-88-171
AFMD-88-33
GGD-88-97
GGD-88-106BR
NSIAD-88-238
GGD-88-126BR
GGD-89-12
6/2/88
6/15/88
7/20/88
7/28/88
9/8/88
9/26/88
10/7/88
GGD-89-35
GGD-89-61
1/27/89
5/12/89
AFMD-89-25
GGD-90-17
5/31/89
12/15/89
IMTEC-90-14
GGD-90-48
GGD-90-33
NSIAD-90-98
1/14/90
3/14/90
4/11/90
5/7/90
NSIAD-90-99
GGD-90-88
IMTEC-90-47
GGD-90-97
AFMD-90-55FS
AFMD-90-100
5/21/90
5/23/90
7/12/90
8/15/90
8/24/90
9/11/90
GGD-90-114
GGD-90-113
9/14/90
9/25/90
NSIAD-91-80
NSIAD-91-104
GGD-92-26
GGD-91-69
1/25/91
2/22/91
3/4/91
4/15/91
57
58
Annual Report: Budget Review,
1992-93
Table C.2
Continued
Report
Number
Date
Many Federal Agencies Collect and Disseminate Information
Money Laundering: The U.S. Government Is Responding to the Problem .
A Framework for Limiting the Government's Exposure to Risks
Treasury Tax and Loan Activity at Two Troubled Banks
OCC's Supervision of the Bank of New England
Was Not Timely or Forceful
Bank Holding Company Securities Subsidiaries' Market
Activities Update
Time Limits on Holding Deposits Generally Met
but More Oversight Needed
Legislation Needed to Strengthen Bank Oversight
NSIAD-91-173
NSIAD-91-130
GGD-91-90
AFMD-91-87
5/1/91
5/16/91
5/22/91
9/12/91
GGD-91-128
9/16/91
GGD-91-131
9/20/91
GGD-91-132
AFMD-92-19
9/30/91
10/21/91
Contracting Practices with Data Processing Servicers
Challenges to Harmonizing International Capital Standards Remain
Assessing the Need to Regulate Additional Financial Activities
Call Report Automation
Flexible Accounting Rules Lead to Inflated Financial Reports
Cross-Border Information Sharing Is Improving, but Obstacles Remain .
Changes in Collateral Practices Could Reduce the Federal
Government's Risk of Loss
Initial Assessment of Certain BCCI Activities in the U.S
Appraisal Reform: Implementation Status and Unresolved Issues
GGD-92-19
GGD-92-41
GGD-92-70
IMTEC-92-60R
AFMD-92-52
GGD-92-110
2/5/92
3/10/92
4/21/92
5/28/92
6/1/92
7/28/92
AFMD-92-54
GGD-92-96
GGD-93-19
9/14/92
9/30/92
10/30/92
ciencies and about the status of any
corrective actions.
During 1992, the OIG reported on six
The Board's Office of Inspector General
functions in accordance with the Inspec- audits and three operations reviews,
tor General Act of 1978, as amended. closed out thirty-five investigations, and
The OIG provides policy direction for conducted more than 300 legislative and
audits, operations reviews, and investiga- regulatory reviews. Audit reports issued
tions of the programs and operations of during 1992 addressed the Board's
the Board and its delegated functions at secure voice operations; the fairness of
the Federal Reserve Banks, and plans thefinancialstatements of the Board and
and conducts them. The OIG also the Federal Financial Institutions Examreviews existing and proposed legisla- ination Council, and each agency's
tion and regulations for economy and compliance with applicable laws and
efficiency. It recommends policies and regulations; the Board's budget process;
supervises and conducts activities that the Board's leave system; and key
promote economy and efficiency and controls related to the retirement and
that prevent and detect waste, fraud, and thrift plans of Board employees as part
abuse in Board and Board-delegated of a public accounting firm's audit of the
programs and operations. In addition, it Federal Reserve Employee Benefits
coordinates its efforts with other govern- Plans. Operations review reports were
mental and nongovernmental agencies issued on the Office of the Staff Director
to promote economy and efficiency and for Management, the Division of Supto detect and prevent fraud and abuse in port Services, and the Office of the
activities administered or financed by Controller. An audit of the administrathe Board. The OIG keeps the Congress tive operations of the Federal Financial
and the Chairman of the Board fully Institutions Examination Council was
•
informed about serious abuses and defi- reported to the council.
Office of Inspector General
59
Appendix D
Expenses and Employment
at the Federal Reserve Banks
Table D.l
Operating Expenses of the Federal Reserve Banks, by District, 1992 and 19931
Thousands of dollars, except as noted
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total, all Districts
Special projects
Check Image Processing
Currency Authentication Systems
Automation Consolidation
Total
Total
1. Excludes capital outlays.
Change
1992
estimate
Amount
Percent
6,135
30,628
8,293
4,879
7,254
14,595
16,334
6.7
9.4
9.2
5.3
5.8
9.6
9.2
8.6
9.4
8.0
7.4
4.7
7.9
91,030
326,988
90,190
92,022
124,154
152,519
177,656
72,054
74,047
101,950
110,133
183,534
1,596,276
97,165
357,616
98,483
96,901
131,409
167,114
193,990
78,235
81,009
110,117
118,323
192,139
1,722,500
6,962
8,167
8,190
8,605
126,224
4,288
5,613
22,669
32,570
3,052
4,238
73,005
80,295
-1,236
-1,374
50,336
47,726
1,628,846
1,802,795
173,949
6,181
10.7
60
Annual Report: Budget Review,
1992-93
Table D.2
Employment at the Federal Reserve Banks, by District, 1992 and 1993
Average number of personnel, except as noted1
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total, all Districts
Special projects
Check Image Processing
Currency Authentication Systems
Automation Consolidation2
Total
Total
Change
1992
estimate
1993
budget
Amount
Percent
1,461
4,281
1,461
1,428
2,119
2,429
2,615
1,196
1,135
1,636
1,695
2,558
24,014
1,448
4,364
1,470
1,399
2,132
2,481
2,683
1,205
1,213
1,662
1,686
2,544
24,286
-13
83
9
-29
13
52
67
9
78
26
-10
-14
272
-.9
1.9
.6
-2.0
.6
2.1
2.6
.7
6.9
1.6
-.6
-.5
1.1
2
0
104
106
2
0
298
300
0
0
194
194
24,120
24,586
466
1.9
1. See chapter 3, note 2, for definition of average number of personnel (ANP).
2. For presentation purposes, FRAS staff are included with the Automation Consolidation special project.
Table D.3
Expenses of the Federal Reserve Banks, by Operational Area, 1992 and 1993
Thousands of dollars, except as noted
Operational area
Monetary and economic policy
Services to the U.S. Treasury and
other government agencies
Services to financial institutions
and the public
Supervision and regulation
Total
MEMO
1992
estimate
1993
budget
Change
Amount
Percent
110,531
119,619
9,088
8.2
181,359
196,747
15,389
8.5
1,027,642
276,745
1,084,884
321,249
57,242
44,504
5.6
16.1
1,596,276
1,722,500
126,224
7.9
508,228
441,777
559,053
489,164
50,825
47,386
10.0
10.7
1
Support
Overhead
1. The costs of support and overhead are included in
the expenses by operational area shown above. Support
refers to activities, such as data processing, whose costs
can be charged to users according to the amount of use.
Overhead refers to activities, such as auditing, whose
costs are charged according to the users' shares of total
direct costs,
Expenses and Employment
Table D.4
Expenses of the Federal Reserve Banks
for Monetary and Economic Policy, by District, 1992 and 1993
Thousands of dollars, except as noted
District
Boston
New York 1
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
Change
1992
estimate
1993
budget
Amount
Percent
5,712
42,857
4,219
5,199
5,153
6,855
7,247
5,547
5,737
5,515
7,132
9,358
6,325
44,991
4,763
5,432
5,717
7,562
7,882
5,999
6,359
6,250
8,144
10,195
613
2,134
545
233
564
706
636
452
622
735
1,013
837
10.7
5.0
12.9
4.5
10.9
10.3
8.8
8.1
10.8
13.3
14.2
8.9
110,531
119,619
9,088
8.2
1. Expenses of open market trading operations, located in the New York District, are $21.0 million for 1992
and $21.9 million for 1993.
Table D.5
Expenses of the Federal Reserve Banks for Services
to the U.S. Treasury and Other Government Agencies, by District, 1992 and 1993
Thousands of dollars, except as noted
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
Change
1992
estimate
1993
budget
Amount
Percent
9,302
39,321
19,626
13,904
11,292
15,441
19,476
9,406
7,026
11,849
9,963
14,753
10,167
42,443
21,529
15,160
12,139
16,129
21,323
10,124
9,006
12,518
11,045
15,164
865
3,122
1,903
1,255
848
688
1,847
718
1,980
669
1,082
411
9.3
7.9
9.7
9.0
7.5
4.5
9.5
7.6
28.2
5.6
10.9
2.8
181,359
196,747
15,389
8.5
61
62
Annual Report: Budget Review,
1992-93
Table D.6
Expenses of the Federal Reserve Banks
for Services to Financial Institutions and the Public, by District, 1992 and 1993
Thousands of dollars, except as noted
District
Amount
Percent
92,128
108,525
116,472
46,232
48,053
63,190
72,072
131,048
65,838
184,282
54,890
63,008
95,797
117,390
123,881
49,815
51,168
67,802
77,211
133,803
3,201
10,114
2,374
2,406
3,670
8,865
7,409
3,583
3,114
4,612
5,139
2,755
5.1
5.8
4.5
4.0
4.0
1,027,642
1,084,884
57,242
5.6
62,637
174,168
52,516
Boston
New York . . .
Philadelphia .
Cleveland . . .
Richmond . . .
Atlanta
Chicago
St. Louis
Minneapolis .
Kansas City .
Dallas
San Francisco
60,602
Total
Change
1992
estimate
8.2
6.4
7.7
6.5
7.3
7.1
2.1
Table D.7
Expenses of the Federal Reserve Banks
for Supervision and Regulation, by District, 1992 and 1993
Thousands of dollars, except as noted
District
Boston
New York . . .
Philadelphia .
Cleveland . . .
Richmond . . .
Atlanta
Chicago
St. Louis
Minneapolis .
Kansas City .
Dallas
San Francisco
Total
1992
estimate
1993
budget
Change
Amount
Percent
13,379
70,642
13,830
12,317
15,582
21,699
34,460
10,869
13,231
21,395
20,966
28,375
14,834
85,901
17,301
13,301
17,755
26,033
40,903
12,298
14,477
23,547
21,923
32,977
1,455
15,259
3,471
984
2,173
4,335
6,443
1,428
1,246
2,152
957
4,602
10.9
21.6
25.1
8.0
13.9
20.0
18.7
13.1
9.4
10.1
4.6
16.2
276,745
321,249
44,504
16.1
Expenses and Employment
63
Table D.8
Expenses of the Federal Reserve Banks
for Salaries of Officers and Employees, by District, 1992 and 1993
Thousands of dollars, except as noted
1992
estimate
1993
budget
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
52,857
171,378
47,020
45,090
64,317
75,097
90,243
36,333
37,729
53,739
55,002
96,586
Total
825,391
District
Change
Amount
Percent
55,046
185,568
49,312
45,770
68,314
80,451
97,636
38,252
41,501
56,818
56,310
101,262
2,189
14,190
2,292
680
3,997
5,354
7,393
1,919
3,772
3,079
1,307
4,677
4.1
8.3
4.9
1.5
6.2
7.1
8.2
5.3
10.0
5.7
2.4
4.8
876,239
50,848
6.2
Table D.9
Factors in the 1992-to-1993 Change in Salaries
of Officers and Employees of the Federal Reserve Banks, by District
Percentage points
Merit
adjustment
Structure
adjustment
Promotion
and reclassification
Change in
staffing
Turnover
and lag1
Overtime
Other
Total
change
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
3.7
4.6
4.1
3.7
4.5
4.3
4.7
4.4
4.1
4.5
4.3
4.3
.0
.1
.1
.0
.0
.1
.0
.2
.3
.3
.2
.7
1.2
1.1
.4
.3
1.7
.8
1.2
.5
.6
1.4
.3
.8
-.3
3.6
1.8
1.1
1.7
2.4
3.2
.5
5.2
.6
-.7
-.5
-.1
-1.0
-.3
-.6
-1.3
-.3
-1.0
-.2
.0
-.9
-1.6
-.2
.0
-.2
-1.3
.0
-.3
-.2
.0
-.2
.1
-.1
-.2
-.2
-.4
.0
.0
-2.9
.0
.0
.1
.1
-.4
.0
.1
.0
4.1
8.3
4.9
1.5
6.2
7.1
8.2
5.3
10.0
5.7
2.4
4.8
Total
4.3
.2
.9
1.8
-.7
-.2
-.2
6.2
District
1. Turnover is the replacement of a departing employee with one having a lower pay grade.
Lag is the time during which a position remains vacant.
64
Annual Report: Budget Review,
1992-93
Table D.10
Capital Outlays of the Federal Reserve Banks, by District, 1992 and 1993
Thousands of dollars, except as noted
Change
1992
estimate
1993
budget
Amount
Percent
Boston
New York
Philadelphia
Cleveland
Richmond1
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
8,193
67,005
9,105
11,508
124,015
16,822
17,189
5,032
5,953
4,449
49,130
22,669
14,573
57,012
15,410
15,082
94,840
25,330
56,417
9,716
17,982
5,511
4,843
21,632
6,380
-9,994
6,305
3,575
-29,175
8,509
39,227
4,685
12,030
1,062
-44,287
-1,037
77.9
-14.9
69.2
31.1
-23.5
50.6
228.2
93.1
202.1
23.9
-90.1
-4.6
Total
341,070
338,348
-2,722
-.8
District
1. Includes FRAS capital of $106,789 thousand in 1992 and $72,649 thousand in 1993.
Table D.ll
Budget Performance of the Federal Reserve Banks,
Operating Expenses, by District, 1992
Thousands of dollars, except as noted
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
Special projects
Check Image Processing
Currency Authentication Systems
Automation Consolidation
Total
Total
1992
budget
1992
estimate
92,730
324,552
88,390
91,022
123,212
151,952
181,205
72,177
74,049
101,070
111,420
184,626
1,596,405
Change
Amount
Percent
91,030
326,988
90,190
92,022
124,154
152,519
177,656
72,054
74,047
101,950
110,133
183,534
1,596,276
-1,700
2,436
1,800
1,000
942
567
-3,549
-123
-2
880
-1,287
-1,092
-127
-1.8
.8
2.0
1.1
.8
.4
-2.0
-.2
.0
.9
-1.2
-.6
.0
4,290
9,286
26,124
39,700
4,288
5,613
22,669
32,570
-2
-3,673
-3,455
-7,130
1,636,105
1,628,846
-7,257
-.4
Expenses and Employment
65
Table D.l 2
Budget Performance of the Federal Reserve Banks,
Employment, by District, 1992
Average number of personnel, except as noted1
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total, all Districts
Special projects
Check Image Processing
Currency Authentication Systems
Automation Consolidation2
Total
Total
1992
budget
1993
estimate
1,476
4,177
1,402
1,438
2,075
2,433
2,643
1,200
1,117
1,626
1,718
2,565
23,872
Change
Amount
Percent
1,461
4,281
1,461
1,428
2,119
2,429
2,615
1,196
1,135
1,636
1,695
2,558
24,014
-15
104
59
-10
44
-4
-28
-4
18
9
-23
-7
143
-1.0
2.5
4.2
-.7
2.1
-.2
-1.0
-.3
1.6
.6
-1.4
-.3
.6
2
0
139
141
2
0
104
106
0
0
-35
-35
24,013
24,120
108
.4
1. See chapter 3, note 2, for definition of average number of personnel (ANP).
2. For presentation purposes, FRAS staff are included with the Automation Consolidation special project.
Table D.l3
Operating Expenses of the Federal Reserve Banks, by Operational Area, 1988-93
Thousands of dollars, except as noted
Year
1988
1989
1990
1991
1992 estimate
1993 budget
Monetary
and
economic
policy
Services to
the U.S.
Treasury
and other
government
agencies
Services to
financial
institutions
and the
public
Supervision
and
regulation
Total
87,283
93,553
98,973
106,699
110,531
119,619
141,524
145,547
156,934
169,483
181,359
196,747
848,481
916,310
938,862
980,379
1,027,642
1,084,884
185,090
195,076
211,884
237,369
276,745
321,249
1,262,379
1,350,487
1,406,652
1,493,930
1,596,276
1,722,500
6.5
6.8
11.7
6.4
MEMO
Average annual
change, percent
5.0
66
Annual Report: Budget Review,
1992-93
Table D.14
Employment at the Federal Reserve Banks, by Operational Area, 1988-93
Average number of personnel, except as noted1
Year
Monetary
and
economic
policy
Services to
the U.S.
Treasury
and other
government
agencies
Services to
financial
institutions
and the
public
Supervision
and
regulation
Support2
Overhead 2
Total
766
783
773
784
778
787
1,819
1,771
1,817
1,870
1,838
1,822
9,033
9,423
9,215
9,044
8,966
8,723
2,209
2,198
2,217
2,343
2,629
2,929
4,562
4,552
4,533
4,629
4,780
4,781
4,952
4,947
4,941
4,924
5,025
5,244
23,340
23,674
23,496
23,594
24,014
24,286
.5
.0
-.7
5.8
1.0
1.1
.8
1988
1989
1990
1991
1992 estimate
1993 budget
MEMO
Average annual
change (percent)
1. See chapter 3, note 2, for definition of average number of personnel (ANP).
2. See table D.3, note 1, for definition.
Maps of the
Federal Reserve System
68
Annual Report: Budget Review, 1992-93
The Federal Reserve System
1
9
s
MINNEAPOLIS •
10
„
12
I SAN FRANCISCO
9
7
^
' _
8
u
DALLAS
3
B
CLEVELAND
4
S " LOUIS
11
• NEW YORK
0
CHICAGOB
1 0 KANSAS CITY •
BOSTON
®
M
^ ^ PHILADELPHIA
RICHMOND
6 .
5
ATLANTA
HAWAII
LEGEND
Both pages
• Federal Reserve Bank city
• Board of Governors of the Federal
Reserve System, Washington, D.C.
Facing page
• Federal Reserve Branch city
— Branch boundary
NOTE
The Federal Reserve officially identifies
Districts by number and Reserve Bank
city (shown on both pages) and by letter
(shown on the facing page).
In the 12th District, the Seattle Branch
serves Alaska, and the San Francisco
Bank serves Hawaii.
The System serves commonwealths
and territories as follows: the New York
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 February 1993.
Maps of the Federal Reserve System
5_E
69
Baltimore
Pittsburgh
Charlotte
• Cincinnati
Buffalo
N E W YORK
BOSTON
PHILADELPHIA
RICHMOND
CLEVELAND
• Nashville
Birmingham.
Louisville
Detroit •
Jacksonville
• Memphis
New Orleans
Miami
CHICAGO
ATLANTA
ST. LOUIS
• Helena
MINNEAPOLIS
Omaha*
ALASKA
Denver
Seattle
Portland
Oklahoma City
KANSAS C I T Y
Houston
San Antonio I
DALLAS
Los Angeles
HAWAII
SAN FRANCISCO
FRB 1/1-2000-0293-C
@FedFRASER