Full text of Annual Report : Budget Review : 1993-1994

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Board of Governors

1993-94



of the Federal Reserve System

March 1994
This publication is available from Publications Services, Board of Governors
of the Federal Reserve System, Washington, DC 20551.



Contents
1

Introduction
FEDERAL RESERVE BUDGET PROCESS
AND OPERATIONAL AREAS

Parti

The 1994 Budgets

9
9
11
12
12

Chapter 1
FEDERAL RESERVE SYSTEM
Net Expenses
Trends in Expenses and Employment
Operational Areas
1994 Budget Initiatives

13
13
14
16
16
19
20
21

Chapter 2
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
Extraordinary Items

23
23
25
26
29
31
32
33
33

Chapter 3
FEDERAL RESERVE BANKS
Major Initiatives
1994 Budget Objective
Operational Areas
Objects of Expense
Capital Outlays
Trends in Expenses and Employment
Volume and Unit Costs
1993 Budget Performance

Part II
37
37
37
38

Special Analysis

Chapter 4
THE FEDERAL RESERVE'S CONSUMER
A N D COMMUNITY AFFAIRS RESPONSIBILITIES
Enforcement of Consumer Protection Laws
Consumer Complaint Program
Growth of Responsibilities




Appendixes
Appendix A
45

SPECIAL CATEGORIES OF SYSTEM

45
48
48
49

Priced Services
Capital Outlays
Special Projects
Currency Printing

EXPENSE

Appendix B
51

SOURCES A N D USES O F F U N D S

Appendix C
53

FEDERAL RESERVE SYSTEM

53
56

General Accounting Office
Office of Inspector General

AUDITS

Appendix D
59

EXPENSES A N D

EMPLOYMENT

AT THE FEDERAL RESERVE

68

BANKS

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
1993, the Federal Reserve System spent
an estimated $1.9 billion and earned an
estimated $954 million in revenue from
priced services, reimbursements, and
other income, for a total of $906 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 $16.9 billion in 1993. Earnings in excess of
expenses, dividends, and surplus—in
1993, an estimated $16.0 billion—are
returned to the U.S. Treasury. (These
earnings are treated as receipts in the
U.S. budget accounting system, and
anticipated earnings projected 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

2

Annual Report: Budget Review, 1992-93

authority delegated by the Chairman,
oversees the process until the budget is
submitted to the Board 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 certain assets and depreciates their
value over appropriate time periods
instead of expensing them in their year
of purchase. Hence, the Board has both
an operations budget 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 chapter 2 and 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 communicates the budget objective to the
Reserve Banks for their guidance. Each
Bank then develops its own budget. The
budgets are reviewed at the Board by a
committee of three governors—the Bank
Activities Committee—both as separate
documents and in light of Systemwide
issues and the plans of the other Banks,
before they are presented to the full
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 charged 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
1994 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, both priced and nonpriced, are grouped by operational area,
and the costs of support and overhead
are charged 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.

Introduction

Operational Areas
For budgeting purposes, the Board of
Governors and the Reserve Banks
account for their activities in four major
operational areas. Three of the areas—
monetary and economic policy, supervision and regulation of financial
institutions, and services to financial
institutions and the public—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.

3

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 1993 the Board
and the Reserve Banks conducted
approximately 773 state member bank
Monetary and Economic Policy
examinations and approximately 2,145
The monetary and economic policy bank holding company inspections and
operational area encompasses Federal acted on a total of 2,797 international
Reserve actions to influence the avail- and domestic applications.
The Board also enforces compliance
ability and cost of money and credit in
the nation's economy. These actions by state member banks with the federal
include setting reserve requirements, laws protecting consumers in their use
setting the discount rate (which affects of credit. In 1993 the System conthe cost of borrowing), and conducting ducted approximately 660 compliance
examinations.
open market operations.
The Board's supervisory responsibilA vast amount of banking and finanities
also extend to foreign operations of
cial data flows through the Reserve
U.S.
banks and, under the International
Banks to the Board, where it is compiled
and made available to the public. The Banking Act, to U.S. operations of
research staffs at the Board and the foreign banks.
Beyond these activities, the Federal
Reserve Banks use these data, along
Reserve
maintains continuous oversight
with information collected by other
public and private institutions, to assess of the banking industry to ensure the
the state of the economy and the overall safety and soundness of the
relationships between thefinancialmar- financial system. This broader responsikets and economic activity. Staff mem- bility is reflected in the System's presbers provide background information ence in financial markets, through open
for the Board of Governors and for each market operations, and in the Federal
meeting of the FOMC by preparing Reserve's role as lender of last resort.
detailed economic and financial analyses and projections for the domestic
economy and international markets. They Services to Financial Institutions
also conduct longer-run economic stud- and the Public
ies of regional, national, and interna- The Federal Reserve System plays a
tional issues.
central role in the nation's payments



4

Annual Report: Budget Review, 1992-93

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
1993 the Reserve Banks distributed
$324.2 billion in currency and $4.6 billion in coin and destroyed $79.6 billion
in unfit currency.
The Reserve Banks (along with their
Branches and regional centers) also
process checks for collection—
approximately 19 billion checks in 1993
with an average daily value of more than
$55 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
7,900 depository institutions use Fedwire through direct computer connections with Reserve Banks, and another
2,800 institutions use Fedwire through
off-line means such as telephone. In
1993, approximately 70 million transfers valued at about $208 trillion were
sent over Fedwire, an average of
$2.9 million per transfer and $824 billion per day.
The Federal Reserve allows participants in private clearing arrangements
to exchange and settle transactions on a
net basis through reserve or clearing
account balances. Users of net settlement services include local check
clearing house associations, automated
clearing house (ACH) networks, credit
card processors, automated teller
machine networks, and national and



regional funds transfer and securities
transfer networks. In 1993, approximately 600,000 net settlement entries
for participants in small-dollar clearing
arrangements were processed by the
Reserve Banks.
Approximately 27,200 depository
institutions participate in the Federal
Reserve's ACH service, which allows
them to send or receive payments
electronically instead of by check. The
institutions use the ACH service for
credit and debit transactions. Of the
approximately 8,700 ACH endpoints, all
but 660 have electronic connections
with the Federal Reserve; by June 30,
1994, all endpoints will be electronically
connected. In 1993 the Reserve Banks
processed approximately 2.10 billion
ACH transactions valued at about
$8.75 trillion; approximately 26 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
Treasury and government agency securities to transfer the securities electronically to other institutions throughout the country. In 1993 the Reserve
Banks processed approximately 11.9 million securities transfers valued at
$146 trillion.
Until 1994, the Federal Reserve provided two paper-based securities services, definitive securities safekeeping
and noncash collection. The priced
definitive securities safekeeping service,
a custodial service, was discontinued at
the end of 1993, however, because of
declining volume. The noncash collection service, through which maturing
coupons and bonds are presented for
collection, processed 1.7 million trans-

Introduction

actions in 1992 and about 1.1 million
transactions in 1993.
Services to the U.S. Treasury
and Other Government Agencies
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 12,435 tax and loan
accounts that are 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 redeemed coupons.




5

System Policy Direction
and Oversight
This operational area encompasses
activities by the Board of Governors to
supervise Board and Bank programs.
Expenses for these activities are considered overhead expenses of the System
and are, therefore, allocated across the
other operational areas.
•

Parti
The 1994 Budgets




9

Chapter 1

Federal Reserve System
For 1994, the Federal Reserve System
has budgeted net operating expenses of
$969.6 million. Revenue from priced
services provided to depository institutions is expected to total $772.7 million,
or 39.5 percent of total budgeted operating expenses. Total operating expenses
are budgeted at $1,954.9 million, an
increase of 5.1 percent over estimated
1993 expenses. This total comprises
$1,808.2 million for the Reserve Banks
and $146.7 million for the Board of
Governors (table 1.1).
Not included in the budget for operations are expenses for Reserve Bank
special projects, budgeted at $68.3 million for 1994, down from $83.3 million
estimated for 1993.1 Also excluded is
the budgeted cost of currency, $366.8 million, an increase of 3.0 percent over the
estimated 1993 cost of $356.1 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 1.1).
System employment (including staff
for the special projects) is budgeted at
26,278 for 1994, a decline of 207 from
the estimated 1993 level. (Details are
given in chapters 2 and 3.)
1. As research and development efforts, special
projects are separate from the continuing operations of the System and are therefore not included
in the System operations budget. 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 1994
appears in appendix A.
2. The Federal Reserve bears the cost associated with the printing of 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.



Net Expenses
The System expects to recover 50.4 percent of the expenses it incurs during
1994. In addition to revenue from priced
services, the budget includes other
income for services provided on behalf
of the U.S. Treasury that are paid for by
the depository institutions using the
services and claims for reimbursement
by the U.S. Treasury and other government agencies for fiscal agency services.
After these items are deducted from
budgeted 1994 operating expenses, the
net expenses of the System show an
increase of 7.0 percent over estimated
1993 net operating expenses (table 1.2).
Revenue from priced services represents fees that are set so as to recover the
full cost of providing the services (as
required by the Monetary Control Act of
1980), including the imputed cost of
float and the return on capital that would
have been received, and the taxes that
would have been paid, had a commercial
entity in the private sector furnished the
services. Projected revenue from priced
Chart 1.1
Distribution of Expenses of the
Federal Reserve System, 1994'

Currency, 15.3%

111

lis

Board of
Governors, 6.1%

' ' • .

• H i

.'

' " • •

Reserve Banks, 75.7%
1. See text notes 1 and 2.

10

Annual Report: Budget Review, 1992-93

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.
"Other income" includes fees for such

services as the settlement of transfers
among depository institutions and the
wire transfer of funds between depository institutions and the Treasury.
Claims for reimbursement represent the
expenses incurred by Reserve Banks in

Table 1.1
Expenses of the Federal Reserve System for Operations, Special Projects,
and Currency, 1992-94'
Millions of dollars, except as noted
Entity and
type of expense

Percentage change

1992
actual

1993
estimate

1994
budget

Operating expenses
Reserve Banks3
Personnel
Nonpersonnel
Board of Governors4
Personnel
Nonpersonnel

1,589.3
1,043.1
546.2
127.8
94.2
33.6

1,719.4
1.148.0
571.4
140.4
104.1
36.3

1,808.2
1,175.4
632.8
146.7
108.9
37.8

8.2
10.1
4.6
9.9
10.5
8.0

5.2
2.4
10.7
4.5
4.6
4.1

Total System operating expenses
Personnel
Nonpersonnel

1,717.1
1,137.3
579.8

1,859.8
1,252.1
607.7

1,954.9
1,284.3
670.6

8.3
10.1
4.8

5.1
2.6
10.4

20.7

3.0

1992 to 1993 1993 to 1994

2

Special projects5
Currency6

28.6

83.3

68.3

295.1

356.1

366.8

1. In this and subsequent tables in this volume,
components may not sum to totals and may not yield
percentages shown because of rounding.
2. Operating expenses reflect all redistributions for
support and allocations for overhead and exclude capital
outlays (as well as Reserve Bank special projects, which
are shown separately).

3. For detailed information, see chapter 3.
4. Includes extraordinary items and expenses of the
Office of Inspector General. For detailed information, see
chapter 2.
5. See text note 1 and appendix A.
6. See text note 2 and appendix A.

Table 1.2
Operating Expenses of the Federal Reserve System, Net of Receipts
and Claims for Reimbursement, 1992-94
Millions of dollars, except as noted

Item

Total System operating expenses

Percentage change

1992
actual

1993
estimate

1994
budget

1,717.1

1,859.8

1,954.9

8.3

5.1

760.8
5.3
180.4

761.3
5.3
187.1

772.7
5.4
207.2

.1
*
3.7

1.5
1.9
10.7

906.1

969.6

17.6

7.0

1992 to 1993 1993 to 1994

LESS

Revenue from priced services
Other income1
Claims for reimbursement2 .
EQUALS

Net System operating expenses

770.6

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.
* Less than 0.05 percent.

Federal Reserve System

11

From actual 1984 expenditures to budgeted 1994 amounts, the operating
expenses of the Federal Reserve System

have increased an average of 5.5 percent
a year in current dollars and 1.8 percent
a year when adjusted for inflation
(chart 1.2). Over the same ten-year
period, System employment, including
staff working on special projects, has
increased by 1,814 (chart 1.3).
From 1982, when the transition to the
requirements of the Monetary Control
Act of 1980 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 partly offset the increase in
staff through reductions in employment
in other areas, mainly services to financial institutions and the public, 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 continu-

Chart 1.2
Operating Expenses of the
Federal Reserve System, 1984-94'

Chart 1.3
Employment in the
Federal Reserve System, 1984-94'

Table 1.3
Revenue from Priced Services, 1992-94
Millions of dollars
1992
actual

Service
Funds transfers and
net settlement
Automated clearinghouse
services
Commercial checks
Book-entry securities
transfers
Definitive securities
safekeeping1
Noncash collection
Special cash services
Total

1993
1994
estimate budget

85.6

86.9

86.5

60.2
578.4

58.6
589.3

66.2
593.6

13.1

14.0

15.9

3.1
7.5
12.9

1.6
4.8
6.1

4.5
6.0

760.8

761.3

772.7

1. This service has been discontinued.

providing fiscal agency services to the
Treasury and other government agencies
for which the agencies have agreed to
reimburse the Federal Reserve.
Sources and uses of funds are presented in appendix B, and the audits of
the System are listed in appendix C.
Trends in Expenses
and Employment

Thousands of persons

Billions of dollars

I
1984

1989

1. For 1993, estimate; for 1994, budget.
2. Calculated with the GDP price deflator.




1994

1984

1

I

1

1
1989

1 1 ) 1 1
1994

1. For 1993, estimate; for 1994, budget. Includes
special projects staff.

12

Annual Report: Budget Review, 1992-93

ing through projected 1994, spending on
bank supervision rose, reflecting an
increase in the number and complexity
of examinations, greater attention to
problem institutions, and the requirements of the Financial Institutions
Reform, Recovery and Enforcement Act
of 1989 (FIRREA) and the 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 (table 1.4). The costs of 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.

1994 Budget Initiatives
Several major initiatives that have an
impact on budgets will continue or
begin in 1994:
• Continuing expansion of supervision and regulation efforts due to greater
responsibilities mandated by the
FDICIA
• Office automation, and consolidation of System automation
• Upgrading of check-processing
equipment, and preparation for and
installation of new cash-processing
equipment.
Partly offsetting the increased expenses associated with these initiatives
will be lower expenses resulting from
check volume losses due to implementation of same-day settlement requirements and from early retirement programs in several Districts.
•

Table 1.4
Operating Expenses of the Federal Reserve System, by Operational Area, 1992-94'
Millions of dollars, except as noted
Operational area
and entity

1992
actual

1993
estimate

1994
budget

Percentage change
1992 to 1993 1993 to 1994

Monetary and economic policy
Reserve Banks
Board of Governors

181.8
110.0
71.8

192.8
116.2
76.6

202.8
123.9
78.9

6.1
5.6
6.7

5.2
6.6
3.0

Services to the U.S. Treasury and
other government agencies2

182.3

198.1

218.0

8.7

10.1

1,023.8
1,021.0
2.8

1,079.9
1,076.4
3.5

1,113.3
1,109.5
3.8

5.5
5.4
25.0

3.1
3.1
8.6

329.2
276.0
53.2

389.0
328.7
60.3

420.8
356.8
64.0

18.2
19.1
13.3

8.2
8.5
6.1

1,717.1
1,589.3
127.8

1,859.8
1,719.4
140.4

1,954.9
1,808.2
146.7

8.3
8.2
9.9

5.1
5.2
4.5

Services to financial institutions
and the public
Reserve Banks
Board of Governors
Supervision and regulation
Reserve Banks
Board of Governors
Tolal
Reserve Banks
Board of Governors3

1. Operating expenses reflect all redistributions for
support and allocations for overhead and exclude capital
outlays and special projects. 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 1994 budget of the Board of
Governors provides $142.8 million for
operations, $1.0 million for extraordinary items (projects of a unique or
one-time nature), and $3.0 million for
the Office of Inspector General. The
Board has authorized 1,708 staff positions for the operational areas and
32 positions for the Office of Inspector
General; no positions are required for
the extraordinary items. The total budget
of $146.8 million represents an increase
of $6.3 million, or approximately 4.5 percent, over estimated 1993 expenses. The
total of 1,740 positions is a net increase
of thirteen over the number authorized
at the end of 1993.
Overview of the Budget
Board Operations
The operations budget of $142.8 million, which covers the Board's four
operational areas (described in the Introduction), is 4.2 percent greater than estimated 1993 expenses, the smallest percentage increase since 1987. Increased
expenses to maintain operations at the
1993 level—expenses such as merit pay
raises, rate increases for fringe benefits,
the full-year cost of office space leased
in 1993, space for training, and higher
costs of goods and services—account
for 1.8 percentage points of the increase.
Initiatives to carry out new mandates,
particularly in support of the supervision
and regulation operational area, and to
improve general operations account for
the remaining 2.4 percentage points.
Sixteen new staff positions have been
authorized, and three have been eliminated, for a net increase of thirteen.



Eight of the new positions support the
supervision and regulation operational
area, three are for System policy direction and oversight, and a net of two have
been added for support and overhead.
Extraordinary Items
Inclusion of certain unique or one-time
projects in the operations budget can
result in undue swings in the size of the
budget and create competition for funds
needed to carry out the Board's basic
mission; therefore, for the last few years,
funds for these "extraordinary items"
have been set apart from the Board's
operations budget. For 1994, $1.0 million has been budgeted for extraordinary
items.
Included in the 1994 budget are funds
for completion of a survey of small
business finances, which was begun in
1993 to gather information from small
and minority-owned businesses on their
financial relationships, credit experiences, lending terms and conditions,
income, and balance sheets. The budget
also provides funds to begin a survey of
consumer finances, which will be completed in 1995, and for hosting the 1994
meeting of the Governors of Central
Banks of the American Continent.
Office of Inspector General
The 1994 budget for the Office of
Inspector General of $3.0 million is
4.9 percent greater than estimated 1993
expenses. The increase covers higher
costs for salaries and benefits as well as
full-year staffing of new positions authorized in the 1993 budget that were not
filled for the entire year.

14

Annual Report: Budget Review, 1992-93

Operations Budget

Current-Level Activities

The Board operations budget for 1994
can be broken down into two major
areas: current-level activities—funds
required to maintain Board operations at
the 1993 level; and initiatives—funds
for new projects and activities in 1994.
The following paragraphs describe funding for these two areas. The overall
operations budget, detailed by Board
division, is shown in table 2.1, and the
number of authorized staff positions
budgeted to support Board operations
are shown in table 2.2.

The 1994 budget increase necessary to
maintain Board operations at the 1993
level is $2.6 million. Personnel costs for
current positions are increasing $3.9 million, and the cost of current goods and
services is declining $1.8 million.
The increase in personnel costs is
largely for salaries. The budget includes
$2.1 million to provide staff salary
increases averaging 2.5 percent. A higher
level of employment is occurring as
positions that were added in earlier
budgets to meet a growing workload are

Table 2.1
Expenses of the Board of Governors, by Division, Office, or Special Account, 1992-94
Dollars, except as noted
Division, office,
or special account
Board Members
Secretary
Legal
Research and Statistics ..
International Finance
Banking Supervision
and Regulation
Human Resources
Management
Support Services

1992
actual

1993
estimate

1994
budget

Change, 1992 to 1993
Amount

Percent

Change, 1993 to 1994
Amount

Percent

3,729,505
4,262,253
4,288,735
3,778,847
3,492,070
3,722,976
6,745,646
7,233,537
5,805,505
23,407,067 23,701,713 23,687,386
8,631,737
8,418,640
8,910,645

532,748
230,906
940,141
294,646
213,097

14.3
6.6
16.2
1.3
2.5

26,482
55,871
487,891
-14,327
278,908

.6
1.5
7.2
-.1
3.2

16,126,848

19,195,533

20,844,051

3,068,685

19.0

1,648,518

8.6

4,218,878
21,202,198

4,674,119
4,728,275
23,698,297 24,407.425

455,241
2,496,099

10.8
11.8

54,156
709,128

1.2
3.0

1,989,768
2,202,679
2,449,119
212,911
Controller
Consumer and
Community
3,818,638
4,438,389
4,648,660
619,751
Affairs
Staff Director for
5,968.063 -1.265,769
6,654,998
5,389,229
Management
Reserve Bank
Operations
and Payment
11,077,191 12,496,204 12,765,725 1,419.013
Systems
Information Resources
Management (IRM). 22,198,103 24,712,852 24,889,331 2,514,749
8,220,452
8,263,013
-300,169
8,520,621
Monetary Affairs
2,659,848 -1,271,914
2,533,797
1,261,883
Special projects
1
IRM income account . . . -20,383,804 -16,343,204 -16,690,303 4,040,600

10.7

246,440

11.2

16.2

210,271

4.7

-19.0

578,834

10.7

12.8

269,521

2.2

11.3
-3.5
-50.2
19.8

176,479
42,561
1,397,965
-347,099

.7
.5
110.8
-2.1

11.6

5,821,599

4.2

Total, Board
operations
Extraordinary items
Office of Inspector
General

122,810,023 137,010,758 142,832,357 14,200,735
3,147,319

598,000

1,930,243

2.868,304

980,000 -2,549,319
3,007,774

938,061

1. Income from various Board divisions for use of central IRM resources.




382,000
48.6

139,470

4.9

Boa rd of Gove mors

filled. The full-year costs in 1994 of the
salaries and fringe benefits for new
positions filled during 1993 account for
$1.6 million, and fewer vacancies,
planned reclassifications, and other salary actions account for $0.2 million. The
expense for fringe benefits is increasing
$0.6 million, primarily because of
increases in the cost of health insurance
for retired employees. These increases
are being partially offset by additional
income of $0.6 million associated with
the System's earlier decision to share
the development costs of the National
Information Center (NIC) with the
Reserve Banks.
The cost of goods and services
necessary to maintain Board operations
at the 1993 level is declining by
$1.8 million in 1994. One-time 1993
costs for automation and for facilities
renovation, the Board's program (in
conjunction with that of the Administra-

tion) to reduce administrative expenses,
less routine facilities maintenance, and
reimbursement by the Reserve Banks
for use of the mainframe computer are
helping to reduce expenses. These
decreases outweigh normal price
increases, the cost of space for training,
higher communications costs associated
with joining the System's communications network, and the expense of
placing the Federal Reserve Regulatory
Service (a publication detailing all Federal Reserve regulations) on diskette.
Initiatives
The 1994 budget provides $3.2 million
for initiatives, which is less than the
$3.8 million required in 1993. The
budget funds new positions as well as
enhancements to improve facilities and
increase productivity. Investments in
automation and communications are

Table 2.2
Positions Authorized at the Board of Governors, by Division or Office, 1992-94
Division or office

Board Members
Secretary
Legal
Research and Statistics
International Finance
Banking Supervision and
Regulation
Human Resources Management
Concern1
Support Services
Controller
Consumer and Community Affairs
Staff Director for Management
Reserve Bank Operations and
Payment Systems
Information Resources Management ..
Monetary Affairs
Special projects
Total, Board operations
Office of Inspector General

1992
actual

1993
estimate

1994
budget

Change
1992 to 1993 1993 to 1994

38
59
84
269
106

38
60
84
276
110

40
60
85
276
110

0
1
0
7
4

2
0
1
0
0

239
48
22

239
48
22

244
48
22

0
0
0

5
0
0

259
31
53
7

260
31
53
11

260
31
53
13

1
0
0
4

0
0
0
2

119
270
63
1

126
271
66
0

127
273
66
0

7
1
3
-1

1
2
0
0

1,668

1,695

1,708

27

13

22

32

32

10

0

1. EEO Concern positions managed by the Division of Human Resources Management.




15

16

Annual Report: Budget Review, 1992-93

necessary to continue implementation
of the Board's ongoing automationtelecommunications plan, which has
been critical in limiting the need to add
staff as the Board's workload continues
to grow.

Operations Budget by
Object of Expense
Personnel expenses account for about
75 percent of the operations budget
(table 2.3). The increase in the 1994
budget for salaries, $3.3 million, includes increases for current personnel,
the full-year salary costs in 1994 for
positions added in 1993, and funding for
the thirteen positions added for 1994.
The increases for retirement and insurance costs cover increases for fringe
benefits, including a major increase in
the cost of health insurance for retired
employees.
The 1994 budget for goods and
services is $1.3 million, or 3.6 percent,
greater than estimated 1993 expenses.
Telecommunications expenses are increasing as a result of the Board's
participation in the System's standard
communications network, Fednet. The
increase for repairs and alterations is due
to additional building modifications
needed to bring the Board into compliance with the Americans with Disabilities Act. The budget for publications is increasing to allow for distribution
of the Federal Reserve Regulatory Service on diskette. Travel expenses are
continuing to increase owing to the high
level of travel required to resolve
supervision and regulation issues.
These increases, the cost of new
training space, and other minor increases
are being largely offset by one-time
costs that were included in the 1993
budget but not in the 1994 budget
and the additional income from the



FFIEC (Federal Financial Institutions
Examination Council), the Reserve
Banks, and other regulatory agencies
for use of the Board's mainframe
computer.

Operations Budget by
Operational Area
The Board's operations budget supports
four broadly defined areas of operation:
monetary and economic policy, supervision and regulation, services to financial
institutions and the public, and System
policy direction and oversight. Data on
expenses and positions for each operational area for 1992-94 are shown in
tables 2.4 and 2.5.

Monetary and Economic Policy
The 1994 budget for monetary and
economic policy is $61,467,000. an
increase of $1,446,000, or 2.4 percent,
over estimated 1993 expenses. The
relatively small increase for this operational area is, in part, associated with
plans (in support of the Administration's
cost-reduction program) to leave
unfilled several authorized staff positions. The budget provides increased
funding for automation initiatives to
help the divisions that support this
operational area meet a larger workload.
Longer-term research, as well as analysis of current conditions, is greatly
facilitated by the ready availability of
high-powered desktop computers and
associated software. Projects expected
to contribute to a larger workload in
1994 include analyses of the impact
of significant events in Europe, Latin
America, and Asia on economic activity
and exchange markets and the impact of
international capital movements and
developments at home and abroad on

Boa rd of Gove

U.S. exports and imports. Other analyses
will focus on the regulatory structure of
the government securities market,
changes in the payment mechanism,
derivative instruments and their effect
on economic data, and the monetary
aggregates.

mors

17

Supervision and Regulation
The 1994 budget for supervision and
regulation is $51,404,000, an increase of
$3,302,000, or 6.9 percent, over estimated 1993 expenses. The costs of the
National Information Center account for

Table 2.3
Operating Expenses of the Board of Governors, by Object of Expense, 1992-94
Dollars, except as noted

Object of expense

Personnel
Salaries
Retirement
Insurance
Total
Goods and services
Travel
Postage and
expressage
Telecommunications ..
Printing and binding ..
Publications
Stationery and
supplies
Software
Furniture and
equipment
Rentals
Books and
subscriptions
Utilities
Building repairs
and alterations . . .
Building repairs
and maintenance .
Contingency
Processing
Center expenses ..
Contractual
professional
services
Tuition/registration
and membership
fees
Subsidies and
contributions
Depreciation
All other
Total
Total, Board
operations
Extraordinary items . . .
Office of Inspector
General

1992
actual

1993
estimate

1994
budget

79,624,065 87,430,000 90,724,562
6,297,728
7,068,993
7,621,016
7,334,322
6,701,386
8,050,090
92,623,179 101,833,315 106,395,668

Change, 1992 to 1993
Amount

Percent

Change, 1993 to 1994
Amount

Percent

7,805,935
771,265
632,936
9,210,136

9.8
12.2
9.4
9.9

3,294,562
552,023
715,768
4,562,353

3.8
7.8
9.8
4.5

3,866,956

4,598,177

4,803,382

731,221

18.9

205,205

4.5

1,116,289
1,799,049
1,102,529
-487,119

1,233,334
1,724,160
1,168,398
-328,400

1,257,500
2,147,000
1,169,200
-189,100

117,045
-74,889
65,869
158,719

10.5
-4.2
6.0
32.6

24,166
422,840
802
139,300

2.0
24.5
.1
42.4

766,724
2,789,229

915,922
3,490,029

917,205
3,500,748

149,198
700,800

19.5
25.1

1,283
10,719

.1
.3

1,185,164
-923,096

1,479,388
446,902

1,213,043
490,005

294,224
1,369,998

24.8
148.4

-266,345
43,103

-18.0
-9.6

695,953
1,805,394

795,050
1,842,000

882,268
1,979,000

99,097
36,606

14.2
2.0

87,218
137,000

11.0
7.4

2,071,284

1,402,475

1,581,050

-668,809

-32.3

178,575

12.7

1,969,385

2,254,420

2,365,036

285,035

14.5

110,616

4.9

263,578

181,000

167,900

-82,578

-31.3

-13,100

-7.2

4,491,285

5,855,926

5,598,394

1,364,641

30.4

-257,532

-4.4

842,216

1,256,119

1,187,360

413,903

49.1

-68,759

-5.5

735,835
6,010,708
85,481
30,186,844

729,795
6,611,806
-479,058
35,177,443

921,395
7,169,491
-724,188
36,436,689

-6,040
601,098
-564,539
4,990,599

-.8
10.0
-660.4
16.5

191,600
557,685
-245,130
1,259,246

26.3
8.4
-51.2
3.6

122,810,023 137,010,758 142,832,357 14,200,735

11.6

5,821,599

4.2

3,147,319

598,000

1,930,243

2,868,304




980,000 -2,549,319
3,007,774

938,061

382,000
48.6

139,470

4.9

18

Annual Report: Budget Review, 1992-93

part of the relatively large increase.
Other major factors are the full-year
costs of new positions added in 1993 to
support enhanced supervision of foreign
institutions and foreign branches of U.S.
institutions; Systemwide actions to improve the examiner training program;
and increases in foreign travel in connection with international banking and
to meet demands stemming from the
increased complexity of the banking
system.
Also contributing to the larger supervision and regulation budget is the
continuing need to develop and improve
data and analytical tools to meet the
requirements of the Home Mortgage
Disclosure Act (HMDA) and the
Community Reinvestment Act (CRA).
Finally, assessments for participation in
the FFIEC and the Board's share of the
production costs for the Uniform Bank
Performance Report are contributing to
the increase.

and the public is $3,000,000, an increase
of $209,000, or 7.5 percent, over estimated 1993 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. The 1994 budget
increase is due in part to the full-year
costs of positions added in 1993 to
enhance analysis and oversight of
domestic and foreign large-value payment systems. Also contributing to the
increase is an emphasis on analysis and
oversight of private-sector, small-dollar
electronic payment systems, including
developments in automated teller
machine (ATM) networks, point-of-sale
(POS) networks, and electronic data
interchange (EDI).

Services to Financial Institutions
and the Public

System Policy Direction
and Oversight

The 1994 budget for oversight of Reserve
Bank services to financial institutions

The 1994 budget for System policy
direction and oversight is $26,961,000,

Table 2.4
Expenses of the Board of Governors for Operational Areas,
Extraordinary Items, and Office of Inspector General, 1992-941
Thousands of dollars, except as noted

Type of expense

Monetary and economic
policy
Supervision and regulation .
Services to financial
institutions and the
public
System policy direction and
oversight

1992
actual

1993
estimate

1994
budget

59,086
39,100

60,021
48,102

61,467
51,404

2,250

2,791

3,000

Change, 1992 to 1993
Amount

Change, 1993 to 1994

Percent

Amount

Percent

935
9,002

1.6
23.0

1,446
3,302

2.4
6.9

541

24.0

209

7.5

22,374

26,097

26,961

3,723

16.6

864

3.3

Total, Board operations . . .

122,810

137,011

142,832

14,201

11.6

5,821

4.2

Extraordinary items
Office of Inspector General .

3,147
1,930

598
2,868

980
3,008

-2,549
938

48.6

382
140

4.9

1. Operating expenses include allocations for support and overhead.




Boa rd of Gove

an increase of $864,000, or 3.3 percent,
over estimated 1993 expenses. This
operational area encompasses supervision of Board and Reserve Bank
programs. The increase for 1994 is due
mainly to the full-year costs of new
positions added in 1993 and the costs
of consulting services needed to assist
in a scheduled review of FRAS (Federal
Reserve Automation Services) electronic data processing operations.
Capital Budget
The Board's 1994 capital budget of
$7.1 million provides $5.3 million for
initiatives and $1.8 million to complete
phased projects approved in the 1993
budget. The budget covers expenditures
to enhance office automation and telecommunications, improve facilities, and
replace furniture and equipment.
The budget provides approximately
$3.1 million to improve automation
capabilities, including implementation
of the Administrative Systems Automation Project (ASAP), improvement of
data storage equipment to extend the life
of the mainframe computer, enhancement of records management hardware

mors

19

and software, installation of upgrades to
continue the migration to distributed
processing, and expansion of the Board's
premise wide network to enhance the
flow of an increasingly large volume of
data between the mainframe and distributed networks.
The budget also includes approximately $1.2 million to replace the
Board's Federal Reserve Communication System (FRCS-80) equipment and
to implement the System's standard
communications network, Fednet. Approximately $0.6 million in initiatives
is included to provide for critical projects associated with maintaining the
integrity of the Board's two main
buildings; ongoing projects, which
account for $1.8 million, include
improvement of the heating, ventilation,
and air conditioning system in the
Eccles Building and repair of the floors
in the garage.
The remaining $0.4 million is budgeted for smaller projects, including a
training project intended to increase
Board employment of physically disabled individuals, pilot projects to test
new technology, purchase of equipment
to enhance internal communications and

Table 2.5
Positions Authorized at the Board of Governors for Operational Areas,
Support and Overhead, and Office of Inspector General, 1992-94
Type of expense

Monetary and economic
policy
Supervision and regulation .
Services to financial
institutions and the
public
System policy direction and
oversight

1992
actual

1993
estimate

1994
budget

Change, 1992 to 1993

Change, 1993 to 1994

Amount

Percent

Amount

Percent

417
372

436
369

436
377

19
-3

4.6
-.8

0
8

.0
2.2

22

21

21

-1

-4.5

0

.0

157

164

167

7

4.5

3

1.8

700

705

707

5

.7

2

.3

Total, Board operations . . .

1,668

1,695

1,708

27

1.6

13

.8

Office of Inspector General .

22

32

32

10

45.5

0

.0

Support and overhead




20

Annual Report: Budget Review, 1992-93

improve storage of and access to data,
and other miscellaneous smaller projects.
Trends in Expenses
and Employment
The increase in the 1994 operations
budget, 4.2 percent, is lower than the
8.4 percent average annual rate of
increase over 1989-94 and the 6.4 percent average annual increase over 198494. The 1994 increase, the smallest
percentage increase since 1987, is targeted mainly at maintaining operations
at the 1993 level and meeting mandated
enhancements of the Board's ongoing
mission, particularly in support of the
supervision and regulation operational

Chart 2.1
Operating Expenses of the
Board of Governors, 1984-94 1
Millions of dollars

130
Current dollars
110
90

1984 dollars2

area. Charts 2.1-2.5 show trends for the
period from 1984.
Adjusted by the GDP deflator, the
1994 increase in the operations budget
becomes 1.8 percent. This compares
favorably with the 2.7 percent average
annual increase since 1984 and the
5.2 percent average annual increase
since 1989. The higher average annual
increase over the past five years has
been due mainly to staff increases
(mostly associated with the impact of
FIRREA and FDICIA and problems in
the banking industry), higher salaries
resulting from the new compensation
program, the acquisition of space to
accommodate additional staff, and
expanded training requirements for the
supervision and regulation function.
The operations budget authorizes
1,708 staff positions, an increase of
twenty-five over the number authorized
in the 1993 budget. Twenty-eight of the
authorized positions are longstanding
positions for summer interns and local
disadvantaged youths, and twenty-two
of the remaining 1,680 positions provide
support to the FFIEC for HMDA processing on a reimbursable basis. Ongoing changes in technology have had a

70

1984

1989

1994

Expenses in millions of

Chart 2.2
Expenses for Personnel Services at
the Board of Governors, 1984-941
Millions of dollars

Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994

Current dollars

1984 dollars

76.5
82.0
84.0
86.2
89.9
95.3
102.4
109.8
122.83
137.0
142.8

76.5
79.1
78.9
78.4
78.8
80.0
82.5
85.4
91.7
98.4
100.2

1. Excludes the Office of Inspector General and
extraordinary items. For 1993, estimate; for 1994, budget.
2. Calculated with the GDP price deflator.
3. Number slightly revised from earlier edition.




1984

1989

1994

1. Excludes the Office of Inspector General. For 1993,
estimate; for 1994, budget.
2. Calculated with the GDP price deflator.

Boa rd of Gove mors 21

great impact on the mix of work in
central data processing operations and
distributed processing areas, resulting in
a significant decrease in staff positions.
Since 1984, the number of positions has
declined by seventy-eight in the Division of Information Resources Management and nineteen in the Division of
Support Services. These decreases have
been offset, however, by an increase of
107 positions in the Division of Banking
Supervision and Regulation and nineteen in the Legal Division. The 1,680
positions authorized for 1994 represents
a net increase of seventeen since 1984;
over the same period, employment has
increased by forty-eight, to a total of
1,636, as the number of vacant positions
has declined.
Extraordinary Items

Chart 2.4
Annual Rate of Change in Operating
Expenses of the Board of Governors,
1984-94'
Percent

flBjl
n

n
null
1984

ill

1989

Chart 2.5
Employment and Authorized Positions
at the Board of Governors,
1984-941

Chart 2.3
Expenses for Goods and Services at
the Board of Governors, 1984-941

Number, in thousands

Year

Employment

Authorized
positions

1,588
1,521
1,484
1,4572
1,484
1,478
1,505
1,517
1,563
1,621
1,636

1,653
1,580
1,540
1,529
1,534
1,533
1,529
1,5422
1,639
1,650
1,658

Millions of dollars

35
30
25

20

1994

1. Excludes the Office of Inspector General and
extraordinary items. For 1993, estimate; for 1994, budget.

Three projects are covered by the
Board's extraordinary items budget. One
project is completion of a survey of
small businessfinancesbegun in 1993.
The data obtained from the survey will
be used for many purposes, including
satisfaction of the requirement of section 477 of the FDICIA that the Board

Current dollars

p.

1984
1985
1986
1987
1988
1989
1990
1991
19922
19932
1994

1984 dollars;
1984

1989

1994

1. Excludes the Office of Inspector General and
extraordinary items. For 1993, estimate; for 1994,
budget.
2. Calculated with the GDP price deflator.




1. Year-end data. Excludes summer intern and youth
positions as well as positions for the Office of Inspector
General, which for 1994 number 28 and 32 positions
respectively; 1994 figures also exclude 22 positions that
provide support to the FFIEC for processing of HMDA
data. For 1993, estimate; for 1994, budget.
2. Numbers slightly revised from earlier edition.

22

Annual Report: Budget Review, 1992-93

make data on credit for small businesses
available annually. The 1994 cost of the
survey is $800,000.
A second project is a survey of
consumer finances, which will gather
information on household income, assets,
debts, pensions, employment, use of
financial services, and other characteristics. The $80,000 budgeted for the
project for 1994 will be used to begin to
design the sample and develop the
survey questionnaire. Assuming Board
approval, the survey will be conducted
in 1995, and additional funds will be
budgeted at that time.
The third project covered by the
extraordinary items budget is hosting of
the 1994 meeting of the Governors of
Central Banks of the American Continent. The site of this annual meeting
rotates among the member countries; the
United States acted as host in 1969 and
1983. Funds in the amount of $100,000
are budgeted for hosting the 1994
meeting.
•




23

Chapter 3

Federal Reserve Banks
The 1994 operating budgets of the
twelve Federal Reserve Banks approved
by the Board of Governors total
$1,808.2 million, an increase of
$88.9 million, or 5.2 percent, over
estimated 1993 expenses (table 3.1). Not
included in these figures are the costs of
two Bank special projects—Development
of Currency Authentication Systems
($1.3 million) and Automation Consolidation ($66.9 million).1 Including the
costs of the special projects, the Banks'
1994 budgets total $1,876.5 million, an
increase of $73.8 million, or 4.1 percent.
Employment excluding the staff associated with the special projects is budgeted at 23,922 ANP (average number
of personnel), a decrease of 288 ANP, or
1.2 percent, from estimated 1993
employment.2 Including the special
projects staff, total budgeted employment is 24,363, a decrease of 220 ANP
from estimated 1993 employment.3
1. The budget for the Automation Consolidation special project includes expenses for the
twelve Districts and FRAS (Federal Reserve
Automation Services, the unit responsible for
consolidated data processing of Reserve Banks).
FRAS charges to the Automation Consolidation
special project in 1994 are budgeted at $41.3
million.
2. The term average number of personnel
describes levels and changes in employment at the
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. Because the Banks' accounting
system carries calculations related to employment
to two decimal places but employment in this
volume is expressed in whole numbers, rounding
error may result in slight discrepancies in employment figures among the tables in this volume.
3. For presentation purposes, FRAS staff is



Expenses for personnel (salaries and
benefits) account for $1,175.4 million,
or 65 percent of Reserve Bank expenses
budgeted for 1994, an increase of
$27.4 million, or 2.4 percent, over 1993
personnel expenses (table 3.2). Nonpersonnel expenses (primarily for building
and automation projects) are budgeted at
$632.8 million, an increase of $61.4 million, or 10.7 percent, over estimated
1993 nonpersonnel expenses.
The following two sections discuss
major initiatives and the budget objective for the Reserve Banks in 1994.
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, and appendix D gives
additional data by District and operational area.
Major Initiatives
The 1994 Reserve Bank budgets provide
for the following initiatives (table 3.3):
• Installation of the Fednet communications network
• Continuation of the automation consolidation project
• Installation of new high-speed currency processors
• Upgrading of check-processing
equipment
• Continued expansion of efforts in
supervision and regulation

included with the Automation Consolidation special project.

24

Annual Report: Budget Review,

1993-94

offsetting expenditures for this initiative
are savings associated with the closing
of local data processing centers and
reductions in data processing staff.
Initiatives related to currency handling are adding $6.2 million to the 1994
budget. Seven Districts have budgeted a
Funds for Fednet, $26.7 million, will total of $3.4 million for new cashbe used to install network equipment processing machines. Other Districts
and additional circuits and to establish a will be preparing for installation of new
second Network Management Control processors and will incur capital expenCenter, in Richmond. The increases for ditures for renovation and remodeling of
Fednet are being partially offset by cash work areas.
lower costs for local circuits within
Upgrading of check-processing equipDistricts.
ment will increase expenditures by
The automation consolidation initia- $5.4 million. Six Banks had postponed
tive is budgeted at $9.8 million. The upgrading their check equipment until
largest portion of this amount is related new processing software was tested; the
to FRAS production charges. Partially software was installed during late 1993,
• Continuation of the regionalization
of savings bond operations
• Implementation of same-day settlement requirements
• Early retirement programs in several Districts.

Table 3.1
Expenses and Employment at the Federal Reserve Banks, 1993 and 19941
Category

Expenses (millions of dollars)
Operations2
Special projects
Total
Employment (average number
of personnel)3
Operations2
Special projects
Total

Change

1994
budget

1993
estimate

1,719.4
83.3
1,802.7

Amount

1,808.2
68.3
1,876.5

24,210
373
24.583

23,922
441
24,363

88.9
-15.0
73.8

Percentage

5.2
4.1

-288
68
-220

-1.2
-.9

1. Excludes capital outlays.
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, 1992-941
Millions of dollars, except as noted
1992
actual

1993
estimate

1994
budget

Personnel
Nonpersonnel

1,043.1
546.2

1,148.0
571.4

Total

1,589.3

1,719.4

Object

1993 to 1994

1,175.4
632.8

10.1
4.6

2.4
10.7

1,808.2

8.2

5.2

1. Includes the costs of support and overhead (see appendix D, table D.3, note 1,
for definitions). Excludes special projects.




Percentage change
1992 to 1993

Federal Reserve Banks

and equipment upgrading will continue
throughout 1994. A few Banks will also
add imaging capabilities in 1994. In
addition, the Philadelphia Bank will
replace its check-processing equipment
and related software and will add
11 ANP to handle testing, training, and
parallel processing. The New York and
St. Louis Banks will also upgrade their
check-processing equipment to accommodate remote processing.
Expanded efforts in supervision and
regulation are projected to increase
expenses $5.3 million and to add
72 ANP in 1994. The rise is due mainly
to increasing responsibilities stemming
from FDICIA. Local supervision and
regulation initiatives in two Districts,
Boston and San Francisco, are adding
$1.7 million and 26 ANP. Also contributing to the 1994 increase is the full-year
impact of examiners hired during 1993.
The savings bond regionalization
initiative is adding $2.8 million to the
Reserve Banks' total 1994 budget. In
1992, the Department of the Treasury
decided to consolidate savings bond

25

operations in the Federal Reserve System. Five Districts—New York (Buffalo
office), Cleveland (Pittsburgh office),
Richmond, Minneapolis, and Kansas
City—were designated processing sites.
Consolidation of operations, including
original issuance, servicing, and direct
redemption, is targeted for completion
by 1996. The five regional sites have
budgeted approximately $6.0 million,
which will be partially offset by cost
reductions of $3.1 million in the other
Districts.
Partially offsetting these increases are
savings of $3.4 million from implementation of same-day settlement requirements. In essence, checks presented by
8:00 a.m. at the location specified by the
payor will be settled on the same day
without a presentment fee. The shortterm consequences of this requirement
in most Districts will be a substantial
decline in volume. In anticipation of the
decline, the Reserve Banks have budgeted to reduce check-processing staff
by 106 ANP.
1994 Budget Objective

Table 3.3
Major Initiatives of the
Federal Reserve Banks, 1994
Initiative

Millions
of dollars

Percentage
of 1994
operating
budget

Fednet
Automation consolidation
Currency initiatives
Check equipment upgrades . . .
Supervision and regulation . . .
Savings bond regionalization .
Same-day settlement
Early retirement
programs

26.7
9.8
6.2
5.4
5.3
2.8
-3.4

1.6
.6
.4
.3
.3
.2
-.2

-1.5

-.1

Total

51.3

3.1

88.9

5.2

MEMO

Increase in total operating
expenses, 1993 estimate
to 1994 budget




In 1993, the Board of Governors approved a 1994 Reserve Bank budget
objective that provided for a 3.4 percent
increase in ongoing general operating
expenses over total 1993 operating
expenses. The Board also anticipated
that expenses for two budget objective
factors, automation consolidation and
Fednet, would add 2.3 percentage points
to the 1994 budget. Table 3.4 compares
the 1994 budget objective with the 1994
budget, both expressed in terms of
percent increase over 1993 expenses.
The 1994 increase for general operating expenses is 0.4 percentage point less
than the budget objective, primarily
because of savings associated with staff
reductions for commercial check processing. Several Districts have budgeted

26

Annual Report: Budget Review,

1993-94

Table 3.4
1993 Budget Objective and Budget
of the Federal Reserve Banks 1
Percent change from 1993 expenses
Item

Budget
objective

Budget

3.4
2.3
5.7

3.0
2.2
5.2

-1.9

-1.1

3.8

4.1

General operating expenses
Budget objective factors
Total before special projects . . .
MEMO

Special projects
Total including special projects ..

1. See data on expenses in table 3.1.

for lower staff levels in anticipation of
reduced volume resulting from sameday settlement requirements and operational efficiencies achieved through
implementation of the automation consolidation initiative.
The increase of $36.5' million for
budget objective factors is $6.2 million,
or 0.1 percentage point, lower than the
target approved by the Board. The
automation consolidation factor is
$18.7 million lower than the objective
because of changes in the transition
schedule, and the Fednet factor is
$12.5 million higher than the budget
objective because of increased expenses

for circuits, equipment, staff to support
implementation, and the establishment
of a second Network Management Control Center.
The 1994 budget for Bank special
projects is $18.0 million higher than the
budget objective. Projected costs of the
Automation Consolidation special project
decreased by only half the amount
anticipated at the time the budget
objective was set, principally because
FRAS's excess capacity charges to the
special project are expected to be higher
than originally projected.
Operational Areas
Tables 3.5 and 3.6 summarize expenses
and employment for the Reserve Banks'
four operational areas. Tables 3.7 through
3.10 give details for each area.
Monetary and Economic Policy
The 1994 budget for the monetary and
economic policy operational area is
$7.7 million, or 6.6 percent, larger than
estimated 1993 expenses. The increase
reflects changes in the way support and
overhead expenses are charged to operational areas, higher costs for library
services, and increased costs for the

Table 3.5
Operating Expenses of the Federal Reserve Banks, by Operational Area, 1992-94'
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
1. Excludes special projects.




1992
actual

1993
estimate

1994
budget

Percentag e change
1992 to 1993 1993 to 1994

109,953

116,167

123,865

5.6

6.6

182,307

198,106

218,042

8.7

10.1

1,020,974
276,038

1,076,363
328,719

1,109,494
356,823

5.4
19.1

3.1
8.5

1,589,273

1,719,355

1,808,224

8.2

5.2

Federal Reserve Banks

Statistics Series Processing (STAT) system project. The staff decrease, 6 ANP,
is due largely to a shift of resources
between operational areas.
Services to the U.S. Treasury
and Other Government Agencies
The 1994 budget for services to the
Treasury and other government agencies
is $19.9 million, or 10.1 percent, higher
than estimated 1993 expenses. The
increase is due mainly to the impact of
savings bond regionalization and to
higher costs for automation consolidation and Fednet. The staffing level is

27

budgeted to increase by 11 ANP, mainly
because of the consolidation of savings
bond operations; the increase is being
partially offset by decreases in other
operational areas related to declining
volumes and operational efficiencies.
Services to Financial Institutions
and the Public
Expenses for this operational area, which
encompasses both priced and nonpriced
services, are budgeted to increase
$33.1 million, or 3.1 percent, in 1994.
The staffing level will decrease by 264
ANP, mainly in the commercial check

Table 3.6
Employment at the Federal Reserve Banks, by Activity, 1992-941
Average number of personnel, except as noted2

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 overhead3
Support
Overhead
Total

1992
actual

1993
estimate

1994
budget

Percentage change
1992 to 1993 1993 to 1994

776

762

756

-1.8

-.9

1,832

1,849

1,860

.9

.6

8,878
2,587

8,612
2,945

8,348
3,042

-3.0
13.9

-3.1
3.3

4,711
4,998

4,814
5,227

4,679
5,237

2.2
4.6

-2.8
.2

23,782

24,210

23,922

1.8

-1.2

1. Excludes special project and FRAS ANP.
2. See text note 2 for definition of average number of personnel.
3. See appendix D, table D.3, note 1, for definitions.

Table 3.7
Expenses of the Federal Reserve Banks for Monetary and Economic Policy, 1992-941
Thousands of dollars, except as noted

Service

Economic policy determination
Open market trading
Total
1. Excludes special projects.




Percentage change

1992
actual

1993
estimate

1994
budget

89,713
20,240

94,718
21,449

99,247
24,618

5.6
6.0

4.8
14.8

109,953

116,167

123,865

5.7

6.6

1992 to 1993 1993 to 1994

28

Annual Report: Budget Review, 1992-93

(197 ANP), automated clearinghouse
(25 ANP), and definitive securities
(22 ANP) services.
The commercial check service
accounts for nearly half the expenses
budgeted for this operational area and
employs 5,078 ANP. The anticipated
increase in expenses—$15.6 million, or
3.0 percent over estimated 1993

expenses—is due mainly to Systemwide
upgrades of check-processing equipment. The staffing level for this service
is expected to decline by 197 ANP, or
3.7 percent, owing to continued automation, downsizing in anticipation of volume losses resulting from implementation of same-day settlement requirements,
and continued improvements in opera-

Table 3.8
Expenses of the Federal Reserve Banks for Services to the U.S. Treasury
and Other Government Agencies, 1992-941
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

1992
actual

1993
estimate

1994
budget

34,089
32,176
17,499

38,660
38,802
18,383

17,599
71,355
18,479

13.4
20.6
5.1

-54.5
83.9
.5

1,279

1,130

2,169

-11.6

91.9

23,119
26,425
19,713
28,007

22,818
28,199
21,441
28,672

22,068
33,315
22,423
30,635

-1.3
6.7
8.8
2.4

-3.3
18.1
4.6
6.8

182,307

198,106

218,042

8.7

10.1

1992 to 1993 1993 to 1994

1. Excludes special projects.

Table 3.9
Expenses of the Federal Reserve Banks for Services to Financial Institutions
and the Public, 1992-941
Thousands of dollars, except as noted

Service

Currency
Coin
Special cash
Commercial check
Other check
Funds transfer
Automated clearinghouse
Book-entry securities transfers
Definitive securities safekeeping
and noncash collection
Loans to member banks and others
Public programs
Other
Total
1. Excludes special projects.




1992
actual

1993
estimate

1994
budget

Percentage change
1992 to 1993 1993 to 1994

158,789
24,721
12,273
502,676
29,756
64,487
87,314
33,160

177,978
25,354
6,256
526,135
32,934
70,334
90,475
33,174

190,452
26,375
5,945
541,781
36,657
70,858
88,705
35,002

12.1
2.6
-49.0
4.7
10.7
9.1
3.6

13,215
16,310
51,094
27,179

11,773
17,908
56,787
27,255

8,276
19,176
59,261
27,007

-10.9
9.8
11.1
.3

-29.7
7.1
4.4
-.9

1,020,974

1,076,363

1,109,494

5.4

3.1

* Less than 0.05 percent.

*

7.0
4.0
-5.0
3.0
11.3
.7
-2.0
5.5

Federal Reserve Banks

tions. The volume of commercial checks
processed is expected to decline 3.3 percent, and unit cost is budgeted to
increase 4.5 percent.
Expenses for the currency service are
expected to increase $12.5 million, or
7.0 percent, mainly because of the
installation of new cash-processing
machines and materials-handling systems. The staffing level will increase by
4 ANP. The volume of currency processed is expected to grow 2.3 percent in
1994, and the unit cost is expected to
increase 5.0 percent.
Expenses for the funds transfer service are expected to increase $0.5 million, or 0.7 percent, primarily because of
higher data communications costs. However, staffing will decrease by 9 ANP, or
6.8 percent. Volume and unit cost are
projected to increase 0.4 percent.
The budget for the automated clearinghouse (ACH) service is decreasing
$1.8 million, or 2.0 percent, mainly
because of staff savings in many Districts. Staffing is expected to decrease by
25 ANP, or 10.5 percent, mainly because
of the successful transition to an allelectronic ACH and efforts in several
Districts to consolidate ACH functions
into one office. The savings are being
partially offset by increased data communications costs. Total ACH volume is

29

projected to increase 14.0 percent in
1994, and the increase will contribute to
a 14.0 percent decline in unit cost.
Supervision and Regulation
The 1994 budget increase for the supervision and regulation operational area of
$28.1 million, or 8.5 percent, over
estimated 1993 expenses reflects a staff
increase of 97 ANP, merit pay raises,
additional expenses for travel, training,
and equipment, and higher overhead.
The staff increase is the result of
implementation of FDICIA and initiatives in several Districts to meet the
requirements of expanding supervision
and regulation functions.
Objects of Expense
Personnel expenses—officer and employee salaries, other compensation to
personnel, and retirement and other
benefits—account for 65 percent of
Reserve Bank 1994 operating expenses.
The 1994 budget is 2.4 percent greater
than estimated 1993 expenses (table
3.11).
Salaries and other personnel expenses, which account for approximately 50 percent of budgeted 1994

Table 3.10
Expenses of the Federal Reserve Banks for Supervision and Regulation, 1992-94 1
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
1. Excludes special projects.




Percentag e change

1992
actual

1993
estimate

1994
budget

183,278

225,439

244,240

23.0

8.3

79,635

88,248

96,516

10.8

9.4

13,125

15,031

16,067

14.5

6.9

276,038

328,719

356,823

19.1

8.5

1992 to 1993 1993 to 1994

30

Annual Report: Budget Review,1994-95

operating expenses, are expected to be
$10.3 million, or 1.1 percent, greater
than estimated 1993 expenses. Expenses
for salaries are expected to increase
$18.4 million, or 2.1 percent. Merit pay
raises account for a large portion of the
increase. Also contributing to the rise in
expenses are promotions, reclassifications, and structure adjustments. The
increases are being partially offset by
savings resulting from early retirement
programs, short-term position vacancies
(lag), reduced overtime expenses, and a
budget year shorter by one business day.
Expenditures for retirement and other
benefits, which account for 14.9 percent
of 1994 budgeted operating expenses,
are expected to be $17.2 million, or
6.8 percent, greater than estimated 1993
expenses, for several reasons: higher
post-employment benefits due to early
retirement programs and a Systemwide
reassessment by outside consultants of

each District's FASB 106 liability; a
Systemwide group life insurance increase
resulting from the 1993 premium holiday; continuing increases in hospital and
medical costs; a rise in social security
taxes; and an increase in the budget
assessment for operational costs by the
Office of Employee Benefits.
Nonpersonnel expenses, which account
for 35.0 percent of budgeted 1994
operating expenses, are projected to
increase 10.7 percent over estimated
1993 expenses.
Equipment expenses are expected to
increase 6.5 percent, accounting for
10.8 percent of budgeted 1994 operating
expenses. Repairs and maintenance costs
are increasing $5.7 million, or 9.5 percent, mainly because of the installation
of new cash processors and new checkprocessing equipment. Rental costs are
increasing $5.2 million, or 19.6 percent,
owing to the full-year impact of Fednet.

Table 3.11
Operating Expenses of the Federal Reserve Banks, by Object, 1992-94 1
Thousands of dollars, except as noted
Object

Percentage change

1992
actual

1993
estimate

1994
budget

84,676
734,738
18,119
205,523
1,043,057

87,837
780,477
26,563
253,084
1,147,961

89,360
797,331
18,474
270,282
1,175,447

3.7
6.2
46.6
23.1
10.1

1.7
2.2
-30.5
6.8
2.4

54,531
174,722
33,589
85,458
36,033
140,556
-39,891
61,216
546,215

54,638
182,782
32,817
80,005
41,630
148,966
-45,290
75,847
571,394

53,967
194,603
31,454
79,436
41,816
155,296
-46,787
122,993
632,778

.2
4.6
-2.3
-6.4
15.5
6.0
13.5
23.9
4.6

-1.2
6.5
-4.2
-.7

1,589,273

1,719355

1,808,224

8.2

5.2

1992 to 1993 1993 to 1994

PERSONNEL

Officers' salaries
Employees' salaries
Other personnel2
Retirement and other benefits
Total personnel
NONPERSONNEL

Forms and supplies
Equipment
Software
Shipping
Travel
Buildings
Recoveries
Other3
Total nonpersonnel
Total

1. Excludes special projects.
2. Expenses for certain contractual arrangements, and miscellaneous personnel expenses.
3. Communications, fees, contra-expenses, shared costs distributed and received,
excess capacity, and other.




.4

4.2
3.3
62.2
10.7

Federal Reserve Banks

Depreciation is increasing $2.8 million,
or 3.2 percent, as a result of the
installation of new currency-processing
and check-processing equipment and
Fednet.
Software expenses, which account for
1.7 percent of Reserve Bank budgeted
1994 operating expenses, are expected
to decline $1.4 million, or 4.2 percent,
from estimated 1993 expenses as a
result of automation consolidation.
Shipping expenses are projected to be
0.7 percent lower than estimated 1993
expenses, accounting for 4.4 percent of
budgeted 1994 operating expenses. The
decrease is due to savings bond regionalization, discontinuation of the System's definitive safekeeping service, and
the Cincinnati Branch's withdrawal from
the cash transportation service.
Building expenses, which account for
8.6 percent of budgeted 1994 operating
expenses, are expected to increase
4.2 percent in 1994 owing to the
completion in 1993 of various capital
projects, which created a $4.1 million
increase in depreciation. Also adding to
the increase is a rise in rental expenses
in Atlanta.
"Other" nonpersonnel expenses are
budgeted to increase $47.1 million over
estimated 1993 expenses, accounting for
6.8 percent of 1994 operating expenses.
The increase is due mainly to two
factors related to FRAS: Banks will be
charged for the use of FRAS and will
share in the costs incurred by the host
sites. The increase related to FRAS
operations is being partially offset by a
reduction for excess capacity.
Capital Outlays
Capital outlays by the Reserve Banks
are budgeted at $271.1 million, an
increase of $41.5 million, or 18.1 percent, over estimated 1993 expenses.
FRAS capital outlays are projected to be



31

$84.1 million, a decrease of $4.4 million, or 5 percent, from estimated 1993
outlays. Capital outlays including FRAS
are budgeted at $355.3 million, an
increase of $37.1 million, or 11.7 percent (table 3.12).
Significant increases are resulting
from the building expansion in Cleveland and the new building program in
Minneapolis. Offsetting these increases
are decreases resulting from lower disk
purchases for FRAS, the completion of
renovations to the Richmond Office
building for the FRAS data center and
office space, and the completion of the
Dallas building project.
Outlays for data processing and data
communications equipment in 1994 are
budgeted at $153.2 million, approximately 43 percent of total capital outlays. More than half the amount is for
FRAS ($59.0 million) and for equipment related to Fednet ($26 million).
The outlays for FRAS are mainly for
additional disk to provide support for
the increasing consolidated workload,
prepaid maintenance, and a new central
processing unit to handle Districtunique workloads. During 1994, Fednet
will purchase dynamic bandwidth management controllers, modems, technical
control equipment, and high-speed link
encryptors, creating a unified network
for all Federal Reserve Banks and their
customers. Excluding FRAS and Fednet, the System has budgeted $17.7 million for CPUs. More than half the
amount for CPUs is for replacement of
CPUs at the New York head office and
EROC, needed to relieve existing constraints on capacity and to accommodate
a projected workload increase and the
proposed one-year delay in the consolidation of the Bank's workload to FRAS
($9 million); the remainder is related to
the upgrading of check-processing systems in several Districts. Other major
outlays for data processing and data

32

Annual Report: Budget Review,1994-95

communications in the 1994 budget
include $14.8 million for check readersorters; $12.4 million for input devices,
mainly PC work stations; and $10.4 million for storage devices.
Building outlays are budgeted at
$87.7 million, about 25 percent of total
capital outlays. Included are the new
building in Minneapolis ($17.1 million),
the proposed building project in Atlanta
($6.0 million), a building renovation
and expansion project in Cleveland
($22.0 million), office space renovations
in all Districts except Minneapolis
($19.7 million), and upgrading of the
electrical distribution system in Boston
($5.0 million).
Purchases of furniture and other equipment are budgeted at $69.5 million,
about 20 percent of total capital outlays.
Approximately 48 percent of this amount
($33.1 million) will go for cash processors, to be installed at Boston, Philadelphia, Richmond, Atlanta, Chicago,
Dallas, and San Francisco. Another
$6.6 million will be spent on other
cash-related equipment, and $14.8 million will be spent on carpeting and
furniture upgrades.

Expenditures for building machinery
and equipment are budgeted at $8.3 million. About one-third of this amount is
for replacement of the heating, ventilation, and air conditioning system in
Richmond ($1.8 million) and for replacement and upgrading of the central
plant's primary mechanical and electrical distribution equipment in Kansas
City ($1.0 million). The remaining
amount will allow several Districts to
upgrade or replace existing machinery
and equipment.
Software outlays planned for 1994
total $28.4 million. The majority of the
software is for the FRAS mainframe
computer ($25.1 million). The remainder is primarily for check-processing
software for several Districts ($2.3
million).
Trends in Expenses
and Employment
Over the ten years ending with the 1994
budget, Reserve Bank expenses have
increased by an average of 5.4 percent a
year (chart 3.1). Over the past five years,
the increase has averaged 6.0 percent a

Table 3.12
Capital Outlays of the Federal Reserve Banks, by Class of Outlay, 1992-94
Thousands of dollars, except as noted

Class of outlay
Data processing and data
communications equipment1
Buildings
Furniture, furnishings,
and fixtures
Other equipment2
Land and other real estate
Building machinery and equipment
Leasehold improvements
Software3
Total

1993
estimate

1994
budget

164,350
61,094

164,596
62,065

153,164
87,661

.1
1.6

-6.9
41.2

24,955
24,520
2,496
24,638
1,740
10,902

23,677
40,296
1,415
13,706
1,645
10,785

17,153
52,300
6.811
8,334
1,390
28,445

-5.1
64.3
-43.3
^14.4
-5.4
-1.1

-27.6
29.8
381.5
-39.2
-15.5
163.7

314,693

318,184

355,258

1.1

11.7

1. Includes FRAS capital of $85,930 thousand in 1992,
$85,360 thousand in 1993, and $58,982 thousand in 1994.
2. Includes FRAS capital of $41 thousand in 1993 and
$54 thousand in 1994.




Percentage change

1992
actual

1992 to 1993 1993 to 1994

3. Includes FRAS capital of $10,357 thousand in 1992,
$3,173 thousand in 1993, and $25,109 thousand in 1994.

Federal Reserve Banks

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
22,669 in 1984 to 23,922 in 1994, an
increase of 1,253 ANP (chart 3.2). Since
1984, staffing has increased in supervision and regulation (1,157 ANP), check
services (195 ANP), and data processing
(260 ANP) owing to expanded responsibilities in these areas. Partially offsetting these increases have been decreased
staff in overhead services (189 ANP)
resulting from Systemwide efforts to
control overhead expenses. Consolidation of operations, together with operational improvements, is resulting in a
combined decrease of 93 ANP in the
funds transfer and ACH services.
Volume and Unit Costs
The volume of measured services as a
whole is expected to decline 0.1 percent
from 1993 volume, and the unit cost is
expected to rise 2.7 percent (table 3.13).
Since 1989, volume has increased at an
average annual rate of 1.3 percent and

unit cost at a rate of 2.6 percent. The
increase in unit cost expected for 1994
reflects a rise in unit cost for all services
except ACH and other Treasury services
(the latter, a component of fiscal services). The commercial check service,
the largest component of the overall
index, expects a decrease in volume of
3.3 percent and an increase in unit cost
of 4.5 percent. The currency service, the
second largest component, expects an
increase in volume of 2.3 percent and an
increase in unit cost of 5.0 percent.
1993 Budget Performance
The 1993 Reserve Bank budgets for
operations, which were approved in
December 1992, totaled $1,722.5 million, an expected increase of $126.2 million, or 7.9 percent, over estimated 1992
expenses. The Banks now estimate that
1993 expenses for operations totaled
$1,719.4 million, which is $3.1 million
under the approved budget.
Six Banks expect to be over their
approved 1993 budgets, five expect to
be under budget, and one expects to be
virtually on target. Eight Banks expect
to be within 1.0 percent of their
approved 1993 budgets. Three Banks

Chart 3.1

Chart 3.2

Operating Expenses of the
Federal Reserve Banks, 1984-94 1

Employment at the
Federal Reserve Banks. 1984-94 1
ANP, in thousands

Billions of dollars

1
1984

I

I

I

I

I

I

I

!

1989

1. For 1993, estimate; for 1994, budget.
2. Calculated with the GDP price deflator.




33

!
1994

1984

1989

1994

1. For 1993, estimate; for 1994, budget. See text note 2
for definition of ANP.

34

Annual Report: Budget Review,1994-95

Table 3.13
V o l u m e a n d U n i t Costs o f M e a s u r e d
Federal Reserve B a n k Services
Percentage change from 1993 to 1994
Service

Volume

Unit cost

-.3
-3.3
14.0
.4
1.6

1.5
4.5
-14.0
.4
9.8

Cash1

2.1

4.6

Fiscal

-4.3

9.6

Securities and noncash

-.8

2.3

All measured services

-.1

2.7

Payments
Commercial check
Automated clearinghouse
Funds transfer
Other checks

1. Includes currency and coin services.

expect overruns of more than 1.0 percent—St. Louis (3.1 percent), Cleveland
(1.4 percent), and Minneapolis (1.3 percent). At St, Louis, the overrun is due
mainly to the delay of the move of the
Bank's computer operations to the FRAS
data centers. At Minneapolis, the overrun is due to an accelerated schedule for
regionalizing savings bond operations
and higher-than-anticipated expenses
related to the Bank's transition to FRAS.
Accelerated implementation of savings
bond regionalization is the primary
reason for the overrun at Cleveland.
Only Dallas expects an underrun of
more than 1.0 percent. Three major
factors are contributing to Dallas's
underrun: lower real estate taxes, the
net effect of automation consolidation, and the District's cost-containment
program.
>




Part II
Special Analysis




37
Chapter 4

The Federal Reserve ys Consumer
and Community Affairs Responsibilities
Since the late 1960s the Federal Reserve,
authorized by the Congress, has been
involved in implementing an evergrowing number of federal laws intended to protect consumers, including
bank customers, in credit and other
financial transactions (see list of consumer protection laws). In the mid1970s the Federal Reserve established a
separate division, the Division of Consumer and Community Affairs, to handle its consumer affairs responsibilities.
Among these responsibilities are writing
and interpreting regulations to carry out
many of the major consumer protection
laws, reviewing bank compliance with
the regulations, responding to inquiries
and complaints about compliance from
the public, and addressing issues of state
and federal jurisdiction. Board members
frequently testify before the Congress
on consumer protection issues, and staff
members participate in meetings and
conferences focused on consumer financial services.
In its efforts, the Federal Reserve is
advised by a Consumer Advisory Council, whose members represent the interests of consumers, community groups,
and creditors nationwide. The council
meets three times a year at the Federal
Reserve in Washington, D.C.; its meetings are open to the public.
Enforcement of Consumer
Protection Laws
For many years, the Federal Reserve has
conducted a specialized examination
program to ensure that federal consumer
protection laws are carried out. Its



responsibilities for enforcement generally extend only to state-chartered banks
that are members of the Federal Reserve
System. Each Federal Reserve Bank has
on its staff specially trained examiners
who regularly evaluate the performance
of banks in its District. The examinations generally are conducted every
eighteen months; poorly rated banks are
examined more frequently, and highly
rated banks are examined every twentyfour months.
Because states also have enacted laws
protecting consumers, the Federal
Reserve at times is called on to determine whether a state law is preempted
by federal provisions. It also acts on
requests for exemption from federal
laws when state and federal requirements are similar and enforcement at the
state level is adequate.
Consumer Complaint Program
The Federal Reserve operates a Systemwide program to respond to inquiries
and complaints from the public about
consumer protection issues involving
financial institutions. Complaints involving state member banks are investigated,
and complaints involving other institutions are referred to the appropriate
regulatory agency. Special procedures
are followed in responding to and
investigating complaints alleging illegal
discrimination in lending.
Information on consumer inquiries
and complaints is maintained in a data
base that alerts the Federal Reserve to
potential problems at individual institutions and assists the division in carrying

38

Annual Report: Budget Review, 1994 -95

out its responsibilities, under the Federal
Trade Commission Improvement Act, to
identify potentially unfair or deceptive
bank practices.
More than 2,500 complaints were
lodged with the Federal Reserve in
1992, approximately 1,000 of them
against state member banks. The
complexity of the complaints has
increased markedly over the past several years, paralleling the significant
growth in the types and complexity of
financial services products available to
consumers.

Growth of Responsibilities
While expansion of financial services
products has increased demands on the
division, the main factor in the growth
of the Consumer and Community Affairs
Division's workload in recent years has
been the greater focus, nationwide, on
community reinvestment and fair lending issues.

intensified as community groups have
become increasingly concerned about
lending in low- and moderate-income
neighborhoods.
Each Reserve Bank has on its staff a
community affairs officer who is familiar with credit needs in the communities
served by institutions in the District.
Among the officer's responsibilities is
fostering communications among banking institutions, government agencies,
and community groups. Through newsletters and other publications, seminars,
workshops, and conferences, the Federal
Reserve provides information to banks
and bank holding companies about
private sector economic initiatives,
community development finance, publicprivate partnerships, and federal and
state development programs. Staff members also work directly with individual
bankers and community development
representatives to promote community
lending.
Home Mortgage Lending

Under 1989 revisions of the Home
Mortgage Disclosure Act, lenders are
In accord with the Community Reinvest- now required to report more information
ment Act (CRA), the Federal Reserve than before about their lending activihas taken an increasingly active role in ties, including the race, gender, and
encouraging banks to work with com- income level of all applicants for home
munity organizations to promote local mortgages, not just those whose applieconomic development. A bank's efforts cations were approved. This additional
to meet the credit needs of its entire information has led to new demands for
community, including low- and moderate- analysis, enhanced examination and
income neighborhoods, are reviewed as complaint investigation efforts, and the
part of the Federal Reserve's regular development and implementation of
examination process. The institution's new initiatives to address the serious
performance under the CRA is also concerns raised by the data.
taken into account when applications for
Analysis of the data for 1991 and
acquisitions and mergers are being 1992 has shown significant differences
evaluated. The public may protest in loan denial rates among racial and
approval of an application on the basis ethnic groups. These findings have
of the institution's CRA record, and resulted in numerous new initiatives,
public scrutiny of applications has including the following:
Community Reinvestment




Consumer and Community Affairs Responsibilities

• increased attention to the lending
records of institutions that seek Federal
Reserve approval of merger and acquisition applications
• stepped-up efforts to encourage and
facilitate lending in low- and moderateincome communities
• expanded coordination with other
government agencies that are involved
in fair lending issues, particularly the
Department of Housing and Urban
Development and the Department of
Justice
• accelerated efforts to develop
responsive policies and procedures for
handling potential fair lending problems
and violations
• development of systems to analyze
institutions' lending records
• intensified efforts to improve public
access to institutions' lending data
• development of specialized training
in fair lending for System personnel
involved in examinations and complaint
analysis

39

• development of new, proposed rules
concerning institutions' responsibilities
to invest in their communities.
Congressional oversight of the financial services area—in particular, fair
lending and community reinvestment
issues—has increased dramatically. Federal Reserve staff members routinely
provide information and analyses to
the Congress, and Board members are
frequently called on to testify before
congressional committees. With fair
lending concerns the focus of national
attention and action, outreach efforts,
conference participation, and working
with lending institutions, community
groups, and others in the private sector
represent serious demands on Federal
Reserve staff. Consequently, to ensure
that quality analysis and deadlines are
not compromised, staff increases have
been authorized for the Division of
Consumer and Community Affairs over
the past several years.
•

Consumer protection laws for which the Federal Reserve has implementation
or enforcement responsibilities
Law

Highlights of provisions

Community
Reinvestment Act

Encourages financial institutions to help meet the credit
needs of their communities, particularly low- and moderateincome neighborhoods; requires institutions to specify the
services they offer and to identify their lending area. The
Federal Reserve assesses a bank's performance in meeting
its obligations to its community and takes that assessment,
along with other factors, into account when considering
applications for mergers, acquisitions, and formation of bank
holding companies.

Consumer Leasing Act

Requires that institutions disclose the cost and terms of
consumer leases (such as automobile leases.)




40

Annual Report: Budget Review, 1994 -95

Law

Highlights of provisions

Electronic Fund
Transfer Act

Establishes rules concerning a consumer's liability for
unauthorized use of a debit card and the unsolicited issuance
of debit cards by financial institutions. (Covers transactions
at automated teller machines; telephone bill-payment plans;
point-of-sale terminals in stores; and preauthorized transfers
to and from a customer's account, such as direct deposit of
salary and social security payments.)

Equal Credit
Opportunity Act

Prohibits discrimination in credit transactions on several
bases, including gender, marital status, age, race, religion,
color, and national origin; requires creditors to grant credit to
qualified individuals without requiring cosignature by
spouses, to inform unsuccessful applicants in writing of the
reasons credit was denied, and to allow married individuals
to have credit histories on jointly held accounts maintained
in the names of both spouses.

Expedited Funds
Availability Act

Dictates when depository institutions must make consumers'
deposited funds available to them; requires institutions
to disclose to their customers their policies on funds
availability.

Fair Credit Billing Act

Specifies how creditors must respond to billing complaints
from consumers; imposes requirements to ensure that
creditors handle credit accounts fairly and promptly.
(Applies mainly to revolving and credit card accounts.)

Fair Credit and Charge
Card Disclosure Act

Requires that applications for credit cards that are sent
through the mail, solicited by telephone, or made available
to the public (such as at counters in retail stores or in
catalogs) contain information about key terms of the
account.

Fair Credit
Reporting Act

Protects consumers against inaccurate or misleading information in credit files maintained by credit reporting
agencies; requires credit reporting agencies to allow credit
applicants to correct erroneous reports.

Fair Debt Collection
Practices Act

Prohibits abusive debt collection practices. (Applies to banks
that function as debt collectors for other entities.)

Fair Housing Act

Prohibits discrimination in the extension of housing credit
on the basis of race, color, religion, national origin, gender,
handicap, or familial status.

Flood Disaster
Protection Act

Requires flood insurance on property in a flood hazard area
that comes under the National Flood Insurance Program.




Consumer and Community Affairs Responsibilities

Law

41

Highlights of provisions

Federal Trade
Commission
Improvement Act

Authorizes the Federal Reserve to identify unfair or
deceptive acts or practices by banks and to issue regulations
to prohibit them. Using this authority, the Federal Reserve
has adopted rules that restrict certain practices in the
collection of delinquent consumer debts, for example,
practices related to late charges, the responsibilities of
cosigners, and wage assignments.

Home Equity Loan
Consumer Protection Act

Requires creditors to provide detailed information about a
credit plan secured by a consumer's dwelling, as well as a
brochure explaining home equity loans in general; restricts
the terms of home equity loan plans; regulates advertising of
home equity loans.

Home Mortgage
Disclosure Act

Requires mortgage lenders to publicly disclose the geographic distribution of their mortgage and home improvement loans as well as their loan approval rates by gender,
race, and certain other applicant characteristics; directs the
Federal Financial Institutions Examination Council (of
which the Federal Reserve is a member) to make summaries
of these data available to the public.

Real Estate Settlement
Procedures Act

Requires that the nature and costs of the real estate
settlement process be disclosed to borrowers; protects
borrowers against certain abusive practices, such as kickbacks; limits the use of escrow accounts.

Right to Financial
Privacy Act

Protects bank customers' financial records from unlawful
scrutiny by federal agencies; specifies procedures government authorities must follow when they seek information
about a customer's financial records from a financial
institution.

Truth in Lending Act

Requires uniform methods for computing the cost of credit
and for disclosing credit terms; gives borrowers the right to
cancel certain loans secured by their residences; prohibits
the unsolicited issuance of credit cards and limits cardholder
liability for unauthorized use.

Women's Business
Ownership Act

Extends to applicants for business credit certain protections
afforded consumer credit applicants, such as the right to an
explanation for credit denial.

Truth in Savings Act

Requires that depository institutions disclose to depositors
certain information, including the annual percentage yield
calculated in a uniform manner; regulates advertising of
savings accounts; prohibits certain methods of calculating
interest.




Appendixes




45
Appendix A

Special Categories of System Expense
Fees for priced services and treatment of
capital outlays are explained in this
appendix. Also described are Reserve
Bank special projects for 1994 and
Federal Reserve expenses for 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 fees charged for providing these
priced services are based on the cost of
providing the services, including all
direct and indirect costs, the interest on
items credited before actual collection
(float), and the private sector adjustment factor (PSAF). The PSAF takes
into account 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.
Annual Pricing Process
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 de-

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 Board governor,
the Board's staff director for Federal Reserve
Bank activities, the presidents of two Reserve
Banks, and the first vice presidents of two other
Reserve Banks.

46

Annual Report: Budget Review,1994-95

posited 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
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 1994
In 1993 the Board approved a 1994
private sector adjustment factor for
Reserve Bank priced services of
$103.6 million, an increase of $12.2 million, or 13.3 percent, over the PSAF of
$91.4 targeted for 1993.
Asset Base
The value of Federal Reserve assets to
be used in providing priced services in

Table A.l
Pro Forma Balance Sheet for Federal Reserve Priced Services, 1993 and 1994'
Millions of dollars
Item

1994

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

9,220.7

9,873.7

Total short-term assets
Long-term assets
Premises2-3
Furniture and equipment2
Leasehold improvements and long-term prepayments2
Capital leases

593.6
5,342.3
64.3
5.5
16.1
3,198.9

534.8
5,465.2
32.6
5.4
9.3
3,826.4

349.9
183.1
32.1
.6

359.0
201.0
49.8
.0

Total long-term assets
Total assets

609.8

565.6

10,483.5

9,786.4

LIABILITIES

Short-term liabilities
Clearing balances and balances arising
from early credit of uncollected items
Deferred-credit items
Short-term debt4

9,873.7

Total short-term liabilities
Long-term liabilities
Obligations under capital leases
Long-term debt4
Total long-term liabilities
Total liabilities
Equity4
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




5,935.9
3,198.9
85.9

6,652.4
3,174.1
47.3

9,220.7

.0

.0
201.8

174.1
201.8

174.1

10,075.5

9,394.8

408.0

391.5

10,483.5

9,786.4

to priced services of $0.4 million for 1993 and $0.4
million for 1994.
4. Imputed figures representing the source of financing
for certain priced-service assets.

Special Categories of System Expense

1994 is estimated at $9,786.4 million
(table A.l). The value of assets assumed
to be financed through debt and equity
in 1994 is $651.5 million, a decrease
of $5.6 million, or 0.9 percent, from
1993 (table A.2); the decrease is due
primarily to lower priced asset base
levels at the Reserve Banks.

47

Cost of Capital, Taxes,
and Other Imputed Costs
For 1994, a pretax rate of return on
equity of 12.7 percent is planned. Other
required PSAF recoveries for 1994—
imputed sales taxes, imputed FDIC
insurance assessment, and Board
expenses—total $35.0 million (table A.2).

Table A.2
Derivation of the Private Sector Adjustment Factor (PSAF), 1993 and 1994
Millions of dollars, except as noted
Item

1993

1994

47.3
609.8
657.1

85.9
565.6
651.5

6.2
9.0
8.6

4.3
8.7
12.7
11.5

Capital structure (percent)
Short-term debt
Long-term debt
Equity

7.2
30.7
62.1

13.2
26.7
60.1

Tax rate (percent)

29.5

30.4

Capital costs 5
Short-term debt
Long-term debt
Equity
Total

2.9
18.2
35.3
56.4

3.7
15.2
49.7
68.6

Other costs
Sales taxes
Assessment for federal deposit insurance
Expenses of Board of Governors
Total

11.4
21.3
2.3
35.0

12.5
19.8
2.7
35.0

Total PSAF recoveries
Millions of dollars
As a percentage of capital ..
As a percentage of expenses

91.4
13.9
15.1

103.6
15.9
17.0

P S A F COMPONENTS

Assets to be financed1
Short-term
Long-term 2
Total
Cost of capital (percent)3
Short-term debt
Long-term debt
Pretax return on equity 4
Weighted average long-term cost of capital

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. A l l short-term assets are assumed to be financed by
short-term debt. Of the total long-term assets, 31 percent
are assumed to be financed by long-term debt and
69 percent by equity. The data are average rates paid by
the 50 largest bank holding companies (determined by
size).




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 1988-92
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.

48

Annual Report: Budget Review, 1994 -95

The $12.2 million increase in PSAF
recoveries is attributable to a higher cost
of equity planned for 1994.
Capital Outlays

Special Projects
For 1994 the Board of Governors has
approved two special research and development projects intended to provide
long-range benefits to both the Federal
Reserve and the banking industry as a
whole. Because spending on such
projects is relatively high and shortterm, 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 Development of Currency
expense at the time of purchase. How- Authentication Systems
ever, the Policy and Procedures Manual In 1989, the Federal Reserve initiated a
for Guidance of Federal Agencies of the special project for development of an
General Accounting Office, which gov- Optical Counterfeit Detection System
erns accounting procedures in the fed- (OCDS). Later that year the project
eral government, specifies in title 2 the was renamed Development of Currency
use of depreciation accounting for busi- Authentication Systems because reness types of operations and for activi- search efforts included development not
ties that recover costs from reim- only of an OCDS, but also of other
bursements or user charges. Certain
authentication alternatives.
activities of the Federal Reserve meet
OCDS is an effort to improve
both these criteria. Under GAAP, the counterfeit-detection capabilities that will
cost of acquiring an asset that is enhance the currency service provided
expected to benefit an entity over future to financial institutions and the public.
periods should be allocated over those Other activities include development of
periods. Such treatment allows a more both long- and short-term authentication
realistic measurement of operating alternatives that are expected to improve
performance.
the Federal Reserve's ability to detect
The Banks capitalize and depreciate counterfeit currency. All these efforts
all assets that cost $1,500 or more; they should produce counterfeit-detector demay either capitalize or expense assets vices to be placed on the Federal Recosting less. The capitalization guideline serve's high-speed currency-processing
for the Board is $1,000.
equipment.
The Banks maintain a multiyear plan
The 1994 project budget is $1.3 milfor capital spending. The Board, in turn, lion. Including 1994 budgeted expenses,
requires the Banks to budget annually expenditures on this special project to
for capital outlays by capital class to date total $18.1 million.
estimate the effect of total operating and
capital spending. During the budget
year, the Banks must submit proposals Automation Consolidation
for major purchases of assets to the The Automation Consolidation special
Board for further review and approval. project will result in consolidation of the
The Board of Governors reviews capital Federal Reserve System's mainframe
expenditures for the Board.
computer operations at three sites. Dur


Special Categories of System Expense

ing 1992, the project focused on developing a project plan and staffing and
equipping the data centers. In 1993,
emphasis was on conversion of District
workloads, specifically on two major
milestones: transition of Richmond and
Dallas District mainframe applications
and migration of the District-unique
workloads from Atlanta, St. Louis, and
Kansas City; and transition of District
EPS (electronic payment system) images to the production environment by
year-end. The 1994 budget of $66.9 million will support these efforts. Including
1994, System expenditures on this special project total $161.2 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.
The Federal Reserve Act stipulates
that the costs of producing currency, as
well as the costs of putting it into

49

Table A.3
Currency in Circulation, New Notes Issued,
and Notes Destroyed, 1993 Estimate
Millions of pieces
Dollar
denomination
1
2
5
10
20
50
100
Total

New
notes
issued2

Notes
destroyed2

5,445
468
1,294
1,250
3,586
777
1,947

3,932
22
968
855
2,051
239
453

3,453
3
883
790
1,850
167
181

14,767

8,520

7,327

Notes
in
circulation1

1. As of September 1993.
2. Based on actual levels through November and
expected levels for December. Figures for new notes
issued do not include additions to inventory at the Reserve
Banks.

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, 1992-94
Millions of dollars, except as noted
1992
actual

1993
estimated

1994
budget

Percentage
change,
1993 to 1994

Printing1
Shipping from Washington and western facilities
Reimbursement to the Treasury
for issuance and retirement
Other2

286.1
5.6

346.1
7.0

355.3
8.3

2.7
18.6

2.0
1.3

2.3
.7

2.4
.9

Total cost of currency

295.0

356.1

366.9

Item

1. Based on 7.9 billion notes in 1992, 8.4 billion notes in 1993, and 9 billion notes in 1994.
2. Includes intrasystem shipment of fit currency, purchase of currency pallets, and shipment of currency pallets to the Bureau of Engraving and Printing.
3. Percentage calculated from unrounded dollars.




4.3
21.03
3.0

51
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 89 percent of current
income (table B.l).
The current expenses of the Reserve
Banks consist of their operating expenses
and the costs of the earnings credits
Table B.l
Income of the Federal Reserve System,
1992 and 1993
Millions of dollars
Source

1992
actual

1993
estimate

U.S. government securities . . .
Foreign currencies
Priced services
Other

6.1
17,336.4
2,122.0
758.4
12.2

5.6
16,890.7
1,249.2
756.3
11.1

Total

20,235.0

18,913.0




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
an amount 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 $16.8 billion
for 1992 and are estimated to be
$16.0 billion for 1993.

52

Annual

Report:

Budget

Review, 1994 -95

Table B.2
Distribution of the Income of the Federal Reserve Banks, 1992 and 1993
Millions of dollars
1992
actual

1993
estimate

20,235

18,913

1,297
177

1,477

18,760

17,254

-959

-201

29

28

Assessments by the Board
Board expenses
Cost of currency

129
296

140
356

Other distributions
Dividends paid to member banks5 .
Transfers to, or from (-), surplus6

172
402

195
348

16,774

15,985

Item
Current income1
LESS
2

Current expenses of Reserve Banks
Operating expenses
Costs of earnings credits

182

EQUALS

Current net income
PLUS

Net additions to, or deductions from (-), current net income

3

LESS

Cost of unreimbursed Treasury services

4

EQUALS

Payment to U.S. Treasury
1. See table B.L
2. Net of reimbursements due from the U.S. Treasury
and other government agencies. Also reflects reductions
of $140.9 million in 1992 and $131.4 million in 1993 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.

53
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
Reserve Bank Operations and Payment
Systems, 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 16 projects in various stages
of completion, since 1979 has completed 116 reports on selected aspects
of Federal Reserve operations (tables
C.l and C.2). The GAO has also
involved the Federal Reserve in about
76 other reviews not directly related to
the System and has terminated 50
others before completion. The reports
are available directly from the GAO.

Table C.l
Active GAO Projects Relating to the Federal Reserve
Subject
Debt crisis in less-developed countries
Insider activity at banks
Supervision of international banks
Credit card industry
Interstate banking and branching in three western states
Loan loss reserve methodologies
Financial crises
Country risk assessments
First City Bancorporation of Texas
Bank securities activities
Bank mutual fund activities
CRA and the fair funding laws
Economic statistics improvements
Real estate threshold level loans
Relationship of the operations of the Federal Reserve System to the federal budget
Reducing Treasury auction time processing




54

Annual

Report:

Budget

Review, 1994 -95

Table C.l
Completed G A O 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




Number

Date issued

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

Federal Reserve System Audits

55

Table C.2
Continued
Report
Statutory Requirements for Examining International Banking
Institutions Need Attention
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

Number

Date issued

GGD-84-39

7/11/84

GGD-84-65

9/30/84

GGD-85-9A

1/14/85

OCE-86-1

11/4/85

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

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

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

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

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




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

56

Annual Report: Budget Review, 1994 -95

Table C.2
Continued
Report

Number

Date issued

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
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-91-80
NSIAD-91-104
GGD-92-26
GGD-91-69
NSIAD-91-173
NSIAD-91-130
GGD-91-90
AFMD-91-87

1/25/91
2/22/91
3/4/91
4/15/91
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

GGD-93-48

1/8/93

AFMD-93-13
AFMD-93-15

2/16/93
2/16/93

Bank and Thrift Criminal Fraud: The Federal Commitment
Could Be Broadened
FRB Examinations and Inspections Do Not Fully Assess Bank Safety
and Soundness
Improvements Needed in Examination Quality and Regulatory Structure .
Personnel Engaged in Public and Congressional Affairs
in Federal Agencies
Credit Availability Guidance
Treasury Automation: Automated Auction May Not Achieve Benefits
or Operate Properly
IRS Can Improve the Federal Tax Deposit System
Funding Foreign Bank Examinations
Preliminary Information Related to a Futures Transaction Fee
The Business Environment in the United States, Japan, and Germany ..
Regulatory Impediments to Small Business Lending Should Be
Removed
Recent Developments in Foreign Exchange Markets
Benefits and Risks of Removing Regulatory Restrictions
Regulatory Burden: Recent Studies, Industry Issues,
and Agency Initiatives

Office of Inspector General
The Board's Office of Inspector General
functions in accordance with the Inspector General Act of 1978, as amended.
The OIG provides policy direction for
audits, operations reviews, and investigations of the programs and operations of
the Board and its delegated functions at



GGD-93-71FS
GGD-93-15R

3/8/93
3/30/93

IMTEC-93-28
AFMD-93-40
GGD-93-35R
GGD-93-108
GGD-93-124

4/27/93
4/28/93
5/4/93
5/17/93
8/9/93

GGD-93-121
GGD-93-154
GGD-94-26

9/7/93
9/24/93
11/2/93

GGD-94-28

12/13/91

the Federal Reserve Banks, and plans
and conducts them. The OIG also
reviews existing and proposed legislation and regulations for economy and
efficiency. It recommends policies and
supervises and conducts activities that
promote economy and efficiency and
that prevent and detect waste, fraud, and
abuse in Board and Board-delegated

Federal Reserve System Audits

programs and operations. In addition, it
coordinates its efforts with other governmental and nongovernmental agencies
to promote economy and efficiency and
to detect and prevent fraud and abuse in
activities administered or financed by
the Board. The OIG keeps the Congress
and the Chairman of the Board fully
informed about serious abuses and defi-

57

ciencies and about the status of any
corrective actions.
During 1993, the OIG reported on ten
audits and three operations reviews
(table C.3). In addition, the OIG closed
eight investigations and conducted a
number of legislative and regulatory
reviews.

Table C.3
Completed OIG Reports Relating to the Federal Reserve System, 1993
Report

Number

Month of issue

Audit of Potential Supervision and Regulation Conficts of Interest
Operations Review of the Division of Consumer and Community Affairs . . .
Audit of the Board's Financial Statements (year ending 12/31/92)
Audit of the FFIEC's Financial Statements (year ending 12/31/92)
Assistance to Financial Statements Audit—FR Employee Benefits
System (year ending 12/31/92)
Operations Review of the Legal Division
Audit of the Board's Database Management Systems
Audit of HMDA Contract for Report Printing
Audit of the Board's Workers' Compensation Program
Operations Review of the Office of Board Members
Audit of the Board's Financial Examination Program
Audit of the Board's Mechanical Inventory Controls
Report on the Failure of Jefferson Bank & Trust

A9105
R9201
A9301
A9302

1/93
2/93
2/93
2/93

A9300
R9202
A9208
A9203
A9204
R9203
A9107
A9209
A9307

3/93
4/93
5/93
7/93
8/93
9/93
9/93
11/93
12/93




59
Appendix D

Expenses and Employment
at the Federal Reserve Banks
Table DA
Operating Expenses of the Federal Reserve Banks, by District, 1993 and 19941
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

1993
estimate

1994
budget

Amount

Percent

97,165
354,784
98,386
98,304
132,215
167,433
193,572
80,638
82,075
111,155
112,686
190,942
1,719,355

101,724
372,192
101,926
105,090
141,035
177,655
203,331
84,036
87,786
118,431
116,699
198,320
1,808,224

4,559
17,408
3,539
6,786
8,820
10,222
9,759
3,398
5,711
7,276
4,013
7,378
88,869

4.7
4.9
3.6
6.9
6.7
6.1
5.0
4.2
7.0
6.5
3.6
3.9
5.2

3,054
6,276
73,972
83,302

0
1,328
66,941
68,269

-3,054
-4,948
-7,031
-15,033

1,802,657

1,876,493

73,836

4.1

60

Annual

Report:

Budget

Review, 1994 -95

Table D.2
Employment at the Federal Reserve Banks, by District, 1993 and 1994
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

1993
estimate

1994
budget

1,415
4,360
1,470
1,412
2,132
2,502
2,640
1,212
1,218
1,671
1,644
2,533
24,210

Change
Amount

Percent

1,370
4,306
1,404
1,440
2,110
2,460
2,615
1,187
1,279
1,640
1,583
2,529
23,922

—45
-54
-66
27
-22
-42
-25
-25
61
-31
-61
-A
-288

-3.2
-1.2
-4.5
1.9
-1.0
-1.7
-1.0
-2.1
5.0
-1.9
-3.7
-.2
-1.2

2
0
371
373

0
0
441
441

-2
0
70
68

24,583

24,363

-220

-.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, 1993 and 1994
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

1993
estimate

1994
budget

Change
Amount

Percent

116,167

123,865

7,698

6.6

198,106

218,042

19,936

10.1

1,076,363
328,719

1,109,494
356,823

33,131
28,104

3.1
8.5

1,719355

1,808,224

88,869

5.2

552,772
494,254

602,967
514,700

50,195
20,446

9.1
4.1

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, 1993 and 1994
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

1993
estimate

1994
budget

Amount

Percent

6,452
43,254
4,863
5,232
5,455
7,283
7,697
6,465
6,346
5,967
7,719
9,432

7,290
46,563
5,349
5,690
5,707
8,265
7,487
6,789
6,200
6,343
7,930
10,254

838
3,309
484
457
252
982
-210
324
-146
376
211
821

13.0
7.6
10.0
8.7
4.6
13.5
-2.7
5.0
-2.3
6.3
2.7
8.7

116,167

123,865

7,698

6.6

1. Expenses of open market trading operations, located in the New York District, are estimated
to have been $21.4 million in 1993 and are budgeted at $24.6 million for 1994.

Table D.5
Expenses of the Federal Reserve Banks for Services
to the U.S. Treasury and Other Government Agencies, by District, 1993 and 1994
Thousands of dollars, except as noted

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




1993
estimate

1994
budget

9,393
42,456
20,465
16,600
13,229
15,459
20,514
10,262
9,967
13,841
10,380
15,539
198,106

Change
Amount

Percent

10,117
45,657
20,244
18,647
16,958
16,919
22,718
10,767
14,622
16,741
9,588
15,065

723
3,200
-220
2,047
3,729
1,460
2,204
505
4,655
2,901
-792
-474

7.7
7.5
-1.1
12.3
28.2
9.4
10.7
4.9
46.7
21.0
-7.6
-3.1

218,042

19,936

10.1

61

62

Annual Report: Budget Review,1994-95

Table D.6
Expenses of the Federal Reserve Banks
for Services to Financial Institutions and the Public, by District, 1993 and 1994
Thousands of dollars, except as noted

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

1993
estimate

1994
budget

Change
Percent

Amount

66,656
179,219
55,593
62,980
95,548
119,126
122,908
50,741
51,271
68,150
72,345
131,828

67,997
185,061
57,173
66,050
98,691
123,745
128,495
51,456
51,992
70,289
74,740
133,807

1,338
5,841
1,581
3,070
3,143
4,619
5,587
715
721
2,139
2,395
1,979

2.0
3.3
2.8
4.9
3.3
3.9
4.5
1.4
1.4
3.1
3.3
1.5

1.076363

1,109,494

33,131

3.1

Table D.7
Expenses of the Federal Reserve Banks
for Supervision and Regulation, by District, 1993 and 1994
Thousands of dollars, except as noted
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total




1993
estimate

1994
budget

Change
Amount

Percent

14,663
89,854
17,466
13,492
17,983
25,564
42,453
13,169
14,491
23,198
22,242
34,143

16,320
94,912
19,161
14,703
19,679
28,726
44,630
15,024
14,972
25,058
24,441
39,195

1,657
5,058
1,695
1,211
1,696
3,162
2,177
1,855
481
1,860
2,199
5,052

11.3
5.6
9.7
9.0
9.4
12.4
5.1
14.1
3.3
8.0
9.9
14.8

328,719

356,823

28,104

8.5

Expenses and Employment

63

Table D.8
Expenses of the Federal Reserve Banks
for Salaries of Officers and Employees, by District, 1993 and 1994
Thousands of dollars, except as noted
1993
estimate

1994
budget

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

54,035
184,084
49,372
45,383
67,886
80,220
94,984
38,320
41,492
56,713
54,922
100,903

Total

868,314

District

Change
Amount

Percent

53,905
188,819
48,747
47,816
69,503
81,636
98,758
38,735
44,265
55,904
54,906
103,698

-130
4,736
-625
2,433
1,617
1,416
3,774
414
2,773
-809
-16
2,795

-.2
2.6
-1.3
5.4
2.4
1.8
4.0
1.1
6.7
-1.4

886,692

18,378

2.1

*

2.8

* Less than 0.05 percent.

Table D.9
Factors in the 1993-to-1994 Change in Salaries
of Officers and Employees of the Federal Reserve Banks, by District
Percentage points
Merit
adjustment

Structure
adjustment

Promotion
and reclassification

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

2.0
3.4
2.4
3.3
2.4
2.5
3.3
2.4
2.4
2.3
2.9
2.5

.1
.0
.0
.1
.1
.0
.1
.0
.1
.1
.1

1.2
1.2
.3
.8
1.7
.9
1.3
.5
.5
1.3
.3
.7

-3.1
-.2
-2.7
2.2
.6
-1.3
-.2
-.9
4.6
-1.1
-2.3
-.3

Total

2.8

.1

1.0

-.4

District

*

Change in Turnover
staffing
and lag1

Overtime

Other

.0
-.9
-.6
-.9
-1.2
.2
-.4
-.6
.0
-1.0
-1.1
.1

-.3
-.6
-.7
-.1
-1.2
-.7
-.1
-.4
-.5
-.2
.0
-.4

-.1
-.4
.0
.1
.1
.0
.1
-.4
-2.8
.1
.0

-.5

-.4

-.3

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.
* Less than 0.05 percent.




*

Total
change
-.2
2.6
-1.3
5.4
2.4
1.8
4.0
1.1
6.7
-1.4
*

2.8
2.1

64

Annual

Report:

Budget

Review, 1994 -95

Table D.10
Capital Outlays of the Federal Reserve Banks, by District, 1993 and 1994
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
FRAS
Total, System

Table

Change

1993
estimate

1994
budget

Amount

Percent

11,166
48,829
13,909
16,344
22,930
20,985
33,891
9,028
8,177
6,000
13,777
24,575
229,610

17,007
44,756
16,206
33,788
16,297
28,932
37,560
5,381
26,759
9,933
10,142
24,353
271,113

5,841
—4,074
2,297
17,444
-6,634
7,947
3,669
-3,647
18,583
3,933
-3,635
-223
41,503

52.3
-8.3
16.5
106.7
-28.9
37.9
10.8
-40.4
227.3
65.6
-26.4
-.9
18.1

88,574

84,145

—4,429

-5.0

318,184

355,258

37,074

11.7

DM

Budget Performance of the Federal Reserve Banks,
Operating Expenses, by District, 1993 1
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

1993
budget

1993
estimate

Amount

Percent

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

97,165
354,784
98,386
98,304
132,215
167,433
193,572
80,638
82,075
111,155
112,686
190,942
1,719355

0
-2,832
-97
1,403
806
319
-418
2,403
1,066
1,038
-5,637
-1,197
-3,145

.0
-.8

3,052
4,238
73,005
80,295

3,054
6,276
73,972
83,302

2
2,038
967
3,007

1,802,657

-138

1,802,795

* Less than 0.05 percent.

*

1.4
.6
.2
-.2
3.1
1.3
.9
-4.8
-.6
-.2

*

Expenses and Employment

65

Table D.l 2
Budget Performance of the Federal Reserve Banks,
Employment, by District, 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

1993
budget

1993
estimate

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

Change
Amount

Percent

1,415
4,360
1,470
1,412
2,132
2,502
2,640
1,212
1,218
1,671
1,644
2,533
24,210

-33
-4
0
14
0
21
-43
7
5
10
-42
-11
-76

-2.3

2
0
298
300

2
0
371
373

0
0
72
72

24,586

24,583

-4

*

.0
1.0
.0
.8
-1.6
.6
.4
.6
-2.5
-.4
-J

*

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.
* Less than 0.05 percent.

Table D.l3
Operating Expenses of the Federal Reserve Banks, by Operational Area, 1989-94'
Thousands of dollars, except as noted

Year

1989
1990
1991
1992
1993 estimate
1994 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

93,553
98,973
106,699
109,954
116,167
123,865

145,547
156,934
169,483
182,307
198,106
218,042

916,310
938,862
980,379
1,020,974
1,076,363
1,109,494

195,076
211,884
237,369
276,038
328,719
356,823

1,350,487
1,406,652
1,493,930
1,589,273
1,719,355
1,808,224

5.8

8.4

12.8

6.0

MEMO

Average annual
change (percent)
1. Excludes special projects.




3.9

66

Annual

Report:

Budget Review, 1994 -95

Table D.l 4
Employment at the Federal Reserve Banks, by Operational Area, 1989-94
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

Overhead2

Total

783
773
784
776
762
756

1,771
1,817
1,870
1,832
1,849
1,860

9,423
9,215
9,044
8,878
8,612
8,348

2,198
2,217
2,343
2,587
2,945
3,042

4,552
4,533
4,629
4,711
4,814
4,679

4,947
4,941
4,924
4,998
5,227
5,237

23,674
23,496
23,594
23,782
24,210
23,922

-.7

1.0

-2.4

6.8

.6

1.2

1989
1990
1991
1992
1993 estimate
1994 budget
MEMO

Average annual
change (percent)

1. Excludes special projects. See chapter 3, note 2, for definition of average number of personnel (ANP).
2. See table D.3, note 1, for definition.




.L

Maps of the
Federal Reserve System




68

Annual Report: Budget Review, 1994 -95

The Federal Reserve System

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 1994.

Maps of the Federal Reserve System

5_E

Baltimore

Pittsburgh

Charlotte
• Cincinnati

Buffalo

BOSTON

PHILADELPHIA

RICHMOND

CLEVELAND

• Nashville
Birmingham.

Jacksonville

• Memphis

New Orleans

CHICAGO

ATLANTA

ST. LOUIS

• Helena

MINNEAPOLIS

Omaha*
ALASKA

Denver

Seattle
Portland

KANSAS CITY

Houston
San Antonio I

DALLAS




HAWAII

SAN FRANCISCO

69

FRB1 /1-2000-0394-C