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Board of Governors of the Federal Reserve System

1994-95

February 1995
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
A N D OPERATIONAL AREAS

Parti

The 1995 Budgets

9
9
11
12
12

Chapter 1
FEDERAL RESERVE SYSTEM
Net Expenses
Trends in Expenses and Employment
Operational Areas
1995 Budget Initiatives

13
13
14
15
18
20
20
22

Chapter 2
BOARD OF GOVERNORS
Overview of the Budget
Highlights of the Budget
Operations Budget by Division and Object of Expense
Operations Budget by Operational Area
Capital Budget
Trends in Expenses and Employment
Extraordinary Items

23
23
25
27
30
32
34
34
35

Chapter 3
FEDERAL RESERVE BANKS
Major Initiatives
1995 Budget Objective
Budget by Operational Area
Budget by Object of Expense
Capital Outlays
Trends in Expenses and Employment
Volume and Unit Costs
1994 Budget Performance

Part II
39
39
40
40

Special Analysis

Chapter 4
SUPERVISION OF FOREIGN B A N K OPERATIONS
I N THE UNITED STATES
Extent of US. Operations
Growth of the Federal Reserve's Responsibilities
Coordination among State and Federal Agencies

Appendixes
45
45
48
48
49

Appendix A
SPECIAL CATEGORIES OF SYSTEM EXPENSE
Priced Services
Capital Outlays
Special Projects
Currency Printing

Appendix B
SOURCES A N D USES OF FUNDS

53
53
57

Appendix C
FEDERAL RESERVE SYSTEM AUDITS
General Accounting Office
Office of Inspector General

Appendix D
EXPENSES A N D EMPLOYMENT
AT THE FEDERAL RESERVE BANKS

MAPS OF THE FEDERAL RESERVE SYSTEM

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 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
1994, the Federal Reserve System spent
an estimated $1.7 billion and earned an
estimated $733 million in revenue from
priced services, reimbursements, and
other income, for a total of $920 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 $19.1 billion in 1994. Earnings in excess of
expenses, dividends, and surplus—in
1994, an estimated $20.4 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

Annual Report: Budget Review, 1994 -95

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
1995 are described in appendix A).
The operations and financial performance of the Reserve Banks are
monitored throughout the year via a
cost-accounting 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.

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 1994 the Board
and the Reserve Banks conducted
approximately 693 state member bank
examinations and approximately 1,984
Monetary and Economic Policy
bank holding company inspections and
The monetary and economic policy acted on a total of 3,574 international
operational area encompasses Federal and domestic applications.
Reserve actions to influence the availThe Board also enforces compliance
ability and cost of money and credit in
by state member banks with the federal
the nation's economy. These actions
include setting reserve requirements, laws protecting consumers in their use
setting the discount rate (which affects of credit. In 1994 the System conthe cost of borrowing), and conducting ducted approximately 632 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
Banks to the Board, where it is compiled U.S. banks and, under the International
and made available to the public. The Banking Act, to U.S. operations of forresearch staffs at the Board and the eign banks.
Beyond these activities, the Federal
Reserve Banks use these data, along
with information collected by other Reserve maintains continuous oversight
public and private institutions, to assess of the banking industry to ensure the
the state of the economy and the rela- overall safety and soundness of the
tionships between the financial markets financial system. This broader responsiand economic activity. Staff members bility is reflected in the System's presprovide background information for the ence in financial markets, through open
Board of Governors and for each meet- market operations, and in the Federal
ing of the FOMC by preparing detailed Reserve's role as lender of last resort.
economic and financial analyses and
projections for the domestic economy
and international markets. They also Services to Financial Institutions
conduct longer-run economic studies of and the Public
regional, national, and international The Federal Reserve System plays a
issues.
central role in the nation's payments

Annual Report: Budget Review, 1994 -95

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
1994 the Reserve Banks distributed
$348.6 billion in currency and $4.5 billion in coin and destroyed $76.6 billion
in unfit currency.
The Reserve Banks (along with their
Branches and regional centers) also
process checks for collection—
approximately 15 billion checks in
1994 with a total value of more than
$11 trillion.
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
8,000 depository institutions use Fedwire through direct computer connections with Reserve Banks, and another
2,500 institutions use Fedwire through
off-line means such as telephone. In
1994, approximately 74 million transfers valued at about $211 trillion were
sent over Fedwire, an average of
$2.9 million per transfer and $841 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
clearinghouse associations, automated
clearinghouse (ACH) networks, credit
card processors, automated teller
machine networks, and national and

regional funds transfer and securities
transfer networks. In 1994, approximately 900,000 net settlement entries
for participants in small-dollar clearing
arrangements were processed by the
Reserve Banks.
Approximately 25,100 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. As of July 1994,
all of the approximately 6,700 ACH
endpoints had electronic connections
with the Federal Reserve. In 1994 the
Reserve Banks processed approximately
2.38 billion ACH transactions valued at
about $8.37 trillion; approximately
24 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 1994 the Reserve Banks
processed approximately 13.5 million
securities
transfers
valued
at
$152 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 about 1.1 million
transactions in 1993 and about 1.8 million transactions in 1994.

Introduction

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

Part I
The 1995 Budgets

9
Chapter 1

Federal Reserve System
For 1995, the Federal Reserve System
has budgeted net operating expenses of
$1,069.8 million. Revenue from priced
services provided to depository institutions is expected to total $740.3 million,
or 36.5 percent of total budgeted operating expenses. Total operating expenses
are budgeted at $2,028.7 million, an
increase of 3.9 percent over estimated
1994 expenses. Of this total, $1,869.3 million is for the Reserve Banks and
$159.4 million is for the Board of Governors (table 1.1).
Not included in the budget for operations are expenses for Reserve Bank
special projects, budgeted at $39.1 million for 1995, down from $62.2 million
estimated for 1994.1 Also excluded
is the cost of currency, budgeted at
$371.1 million for 1995, an increase of
0.6 percent over the estimated 1994 cost
of $368.9 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 Federal Reserve Automation Services, FRAS) is budgeted at 25,563 for
1995, a decrease of 474 from the esti1. As research and development efforts, special
projects are separate from the continuing operations of the System and are therefore not included
in the System operating 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 1995
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.

mated 1994 level. (Details are given in
chapters 2 and 3).
Net Expenses
The System expects to recover 47.3 percent of the expenses it incurs during
1995. In addition to revenue from priced
services, the budget includes other
income from services provided on behalf
of the U.S. Treasury that are paid for
by depository institutions using the
services, and also claims for reimbursement by the U.S. Treasury and other
government agencies for fiscal agency
services. After these items are deducted
from budgeted 1995 operating expenses,
the net expenses of the System show an
increase of 8.9 percent over estimated
1994 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
Chart 1.1
Distribution of Expenses of the
Federal Reserve System, 1995'

— Special Projects, 1.6%
T--J— Currency, 15.2%

LS—
^

Governors, 6.5%

Reserve Banks, 76.6%
1. See text notes I and 2.

Annual

Report:

Budget Review, 1994 -95

would have been paid, had a commercial
entity in the private sector furnished the
services. Projected revenue from priced
services is detailed in table 1.3; the
constraint imposed on Federal Reserve
budgets by the need to keep such
services competitive and the calculation

of fees are discussed in appendix A.
"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 U.S. Treasury.
Claims for reimbursement represent the

Table 1.1
Expenses of the Federal Reserve System for Operations, Special Projects,
and Currency, 1993-95 1
Millions of dollars, except as noted
Percentage change

1993
actual

1994
estimate

1995
budget

Operating expenses2
Reserve Banks3
Personnel
Nonpersonnel
Board of Governors4
Personnel
Nonpersonnel

1,711.5
1,144.5
567.0
139.4
104.7
34.7

1,805.2
1,168.6
636.6
146.9
108.7
38.2

1,869.3
1,183.8
685.5
159.4
116.7
42.7

5.5
1.8
13.1
5.4
3.8
10.1

3.6
1.3
7.7
8.5
7.4
11.8

Total System operating expenses
Personnel
Nonpersonnel

1,850.9
1,253.2
597.7

1,952.1
1,277.3
674.8

2,028.7
1,300.5
728.2

5.5
1.9
12.9

3.9
1.8
7.9

3.4

Entity and
type of expense

Special projects5

84.3

62.2

39.1

356.6

Currency 6

368.9

371.1

1993 to 1994 1994 to 1995

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, 1993-95
Millions of dollars, except as noted

Item

Total System operating expenses

Percentage change

1993
actual

1994
estimate

1995
budget

1,850.9

1,952.1

2,028.7

5.5

3.9

762.3
5.2
189.3

762.4
5.6
202.0

740.3
5.8
212.8

.0
7.7
6.7

-2.9
3.6
5.3

982.1

1,069.8

9.8

8.9

1993 to 1994 1994 to 1995

LESS

Revenue from priced services
Other income 1
Claims for reimbursement2
EQUALS

Net System operating expenses

894.1

1. Before January 1992, fees for transfer of U.S.
Treasury book-entry securities were included in Other
income; now they are forwarded directly to the U.S.
Treasury general account.

2. Costs of fiscal agency services provided to the U.S.
Treasury and other government agencies for which the
agencies have agreed to reimburse the Federal Reserve. In
practice, not all these claims are paid.

Federal Reserve System
Table

1.3

R e v e n u e f r o m P r i c e d Services, 1 9 9 3 - 9 5
Millions of dollars
1993
actual

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

1994
1995
estimate budget

92.3

90.2

59.1
587.5

65.3
578.9

70.9
554.4

14.2

15.5

15.7

1.5
4.9
6.3

4.1
6.3

3.8
5.3

762.3

Total

88.8

762.4

740.3

1. This service has been discontinued.

expenses incurred by Reserve Banks in
providing fiscal agency services to the
U.S. 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
From actual 1985 to budgeted 1995, the
operating expenses of the Federal
Chart

1.2

Reserve System increased an average of
5.9 percent a year in current dollars and
2.8 percent a year when adjusted for
inflation (chart 1.2). Over the same tenyear period, System employment, including staff working on special projects and
FRAS, increased by 961 (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 partially to 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 FederalReserve 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 continuChart

1.3

O p e r a t i n g Expenses o f the

E m p l o y m e n t i n the

F e d e r a l Reserve S y s t e m , 1 9 8 5 - 9 5 '
Billions of dollars

Federal Reserve S y s t e m ,

1
1985

1990

1. For 1994, estimate; for 1995, budget.
2. Calculated with the GDP price deflator.

1995

1985-95'
Thousands of persons

1985

I
I
1990

i
1995

1. For 1994, estimate; for 1995, budget. Includes
FRAS staff.

Annual Report: Budget Review, 1994 -95

ing through projected 1995, spending on
bank supervision expanded, reflecting
an increase in the number and complexity of examinations, greater attention to
problem institutions, and the increase
in responsibilities resulting from the
requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and 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.

1995 Budget Initiatives
Several major initiatives that have an
impact on Federal Reserve budgets will
continue or begin in 1995:
• Expansion of supervision and regulation efforts due to the heightened
emphasis on fair lending laws and the
international supervisory program
• Office automation, and consolidation
of System automation
• Upgrading o f 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 due to staff
reductions resulting from the consolidation of savings bonds operations and
from early retirement programs in several
Districts.
•

Table 1.4
Operating Expenses of the Federal Reserve System, by Operational Area, 1993-95'
Millions of dollars, except as noted
Operational area
and entity

1993
actual

1994
estimate

1995
budget

Percentage change
1993 to 1994 1994 to 1995

Monetary and economic policy
Reserve Banks
Board of Governors

189.3
114.6
74.7

201.7
124.4
77.3

219.4
135.1
84.3

6.6
8.6
3.5

8.8
8.6
9.1

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

193.6

212.3

221.1

9.7

4.1

1,080.2
1,076.9
3.3

1,112.2
1.108.6
3.6

1,122.3
1,118.6
3.7

3.0
2.9
9.1

.9
.9
2.8

387.7
326.3
61.4

425.9
359.9
66.0

465.9
394.5
71.4

9.9
10.3
7.5

9.4
9.6
8.2

1,850.8
1,711.4
139.4

1,952.1
1,805.2
146.9

2,028.7
1,869.3
159.4

5.5
5.5
5.4

3.9
3.6
8.5

Services to financial institutions
and the public
Reserve Banks
Board of Governors
Supervision and regulation
Reserve Banks
Board of Governors
Total
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 approved 1995 budget of the Board
of Governors provides $153.1 million
for operations, $3.2 million for extraordinary items (projects of a unique
nature), and $3.1 million for the Office
of Inspector General. The Board has
authorized 1,713 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 of 1,745 positions is a net increase of sixteen over the
number authorized at the end of 1994.
By the end of 1995, thirty-three positions in the operational areas and one in
the Office of Inspector General will be
eliminated in support of the President's
program to reduce staffing.
Overview of the Budget
Board Operations
The operations budget of $153.1 million, which covers the Board's four
operational areas (described in the
Introduction), is 6.9 percent larger than
estimated 1994 expenses. Increased
expenses to maintain operations at the
1994 level—expenses such as salary
increases, rate increases for fringe
benefits, the full-year cost of rental
space added in 1994, and higher costs
for goods and services—account for
4.7 percentage points of the increase.
Initiatives to increase staffing in the
Division of Consumer and Community
Affairs, to update and enhance mainframe facilities and office automation,
and to improve facilities, together with
other general projects, account for an
increase of 2.6 percentage points, for a
total increase of 7.3 percent. The imposi

tion of a $507,000 savings target, which
by historical standards is considered
attainable, reduces the increase over
estimated 1994 expenses to 6.9 percent.
In support of the federal program to
reduce the number of positions, each
Board division was asked to identify the
effects of a 2 percent cut in staffing for
current activities by the end of 1995.
The impact of such a reduction was then
reviewed during the division's planning
meeting with its oversight committee.
Some divisions will reduce staff on the
basis of productivity improvements
resulting from investments in automation, and others will reduce programs;
some divisions may not reduce staff at
all. Current projections indicate that, all
else being stable, thirty-three positions
will be eliminated. However, new work
requires the addition of sixteen positions, more than half as a result .of
pressure in the consumer affairs area.
Few of these new positions are necessitated by legislation passed in 1994;
additional requirements may arise as
that legislation is analyzed and new
Community Reinvestment Act regulations are agreed upon. Because the
divisions had ample time to plan, most
of the positions to be eliminated are
already vacant; consequently, the staff
reduction program did not significantly
affect 1995 expenses or office space
requirements.
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

Annual Report: Budget Review, 1994 -95

mission; therefore, for the last few years,
funds for these "extraordinary items"
have been set apart from the Board's
operations budget. For 1995, $3.2 million has been budgeted for extraordinary
items. Details follow in a later section.

necessary support activities. Funding is
also provided to ensure proper maintenance of facilities and compliance with
the requirements of the Clean Air Act
and the Americans with Disabilities Act.

Office of Inspector General

Records Management

The 1995 budget for the Office of
Inspector General of $3.1 million is
6.1 percent greater than estimated 1994
expenses. The full-year cost for positions that were vacant in 1994 and
salary increases are the main factors in
the overall increase.

A major study is under way to develop
improved procedures for identifying,
storing, and retrieving Board records.
The study is to ensure that the Board is
complying with recent legal decisions
affecting electronic records and that
changes resulting from technology
improvements in word processing,
including reduced secretarial participation in creating documents, do not
adversely affect the quality of Board
recordkeeping and document management. Implementation of the necessary
legal and procedural changes, including
storage of electronic messages, may
have an impact on automation resources.

Highlights of the Budget
Consumer and Community Affairs
The Board's 1995 budget includes nine
new positions in the Division of
Consumer and Community Affairs. The
volume and complexity of the division's
activities have grown substantially, and
the additional staff is necessary to
respond, in a timely and accurate manner, to requests from the public for help
in understanding compliance regulations
and policies; to train the growing number
of compliance examiners and community affairs specialists in the Reserve
Banks; to develop new policies related
to the Community Reinvestment Act;
to review bank examinations for consistency; and to work with interagency
groups on fair lending issues. The nine
new positions are not tied to the recent
legislation affecting this function.
Facilities and Equipment
The 1995 budget includes funds for
leasing additional space to accommodate near-term growth in employment, to reduce crowding resulting from
earlier staff increases, and to provide
space for conference rooms and other

Potential Requirements Not Funded
in the 1995 Budget
A number of important issues that have
potential significant funding implications are not included in the budget
because staff members have not yet
determined the full impact of the legislation, developed an action plan, or
estimated the costs of the requisite
resources. All are tied to the supervision
and regulation function.
• The recent passage of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 will require review
and revision of regulations and guidelines concerning interstate banking,
interstate branching, branching by
foreign banks, branch closures, and
management of shell branches. The
impact on resources is being reviewed.

Board of Governors

• The Riegle Community Development
and Regulatory Improvement Act of
1994 will result in changes in the regulatory appeals process (including the
creation of an independent intra-agency
appellate process, an ombudsman, and
an alternative dispute resolution program); changes in procedures for forming bank holding companies and for
engaging in nonbanking activities; and
added discretion in establishing safety
and soundness standards. These and
other requirements in the legislation
will undoubtedly have an impact on
resources.

• Still pending are proposed regulatory
changes in the Community Reinvestment Act (CRA) aimed at providing
guidance to financial institutions on the
nature and extent of their CRA obligation and at clarifying the methods by
which compliance will be evaluated and
enforced. The potential impact is not
known.
Operations Budget by Division
and Object of Expense
The overall operations budget, detailed
by Board division, is shown in table 2.1,

Table 2.1
Expenses of the Board of Governors, by Division, Office, or Special Account, 1993-95
Dollars, except as noted
Division, office,
or special account

1993
actual

1994
estimate

1995
budget

Board Members
3,866,102 3,916,940 4,369,765
Secretary
3,720,127 3,837,344 4,084,054
Legal
6,868,869 7,254,741 7,688,060
Research and Statistics .. 23,135,368 23,993,695 24,832,359
International Finance
8,418,805 8,943,573 9,500,920
Banking Supervision
and Regulation
19,208,880 24,645,353 25,280,549
Human Resources
Management
4,453,357 4,850,264 5,229,762
Support Services
23,867,183 25,594,146 27,366,402

Change, 1993 to 1994
Amount

Percent

Change, 1994 to 1995
Amount

Percent

50,838
117,217
385,872
858,327
524,768

1.3
3.2
5.6
3.7
6.2

452,825
246,710
433,319
838,664
557,347

11.6
6.4
6.0
3.5
6.2

5,436,473

28.3

635,196

2.6

396,907
1,726,963

8.9
7.2

379,498
1,772,256

7.8
6.9

Controller
2,138,963 2,286,880 2,763,497
147,917
Consumer and
Community
Affairs
4,390,440 4,806,254 5,590,872
415,814
Staff Director for
Management
5,434,511 2,092,294 2,010,038 -3,342,217
Reserve Bank
Operations
and Payment
Systems
11,889,570 12,687,458 13,155.644
797,888
Information Resources
Management (IRM). 23,573,407 23,490,304 25,316,792
-83,103
Monetary Affairs
7,911,399 8,306,883 8,513,060
395,484
Special projects
3,339,685 3,222,578 2,134,052 -117,107
1
IRM income account ... -15,914,071 -16,796,350 -14,770,026 -882,279

6.9

476,617

20.8

Total, Board
operations

136,302,595 143,132,357 153,065,800

Extraordinary items
Office of Inspector
General

6,829,762

436,473

980,000

3,215,000

2,932,068

3,110,862

222,274

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

784,618

16.3

-82,256

-3.9

6.7

468,186

3.7

-.4
5.0
-3.5
-5.5

1,826,488
206,177
-1,088,526
2,026,324

7.8
2.5
-33.8
12.1

5.0

9,933,443

6.9

543,527

2,709,794

9.5
-61.5

2,235,000
8.2

178,794

6.1

Annual Report: Budget Review, 1994 -95

and the number of authorized staff
positions budgeted for Board operations
is shown in table 2.2.
Personnel costs for current positions
are increasing $7.2 million, and personnel costs for new positions are increasing $0.6 million (table 2.3). The increase
is largely for salaries. The budget
includes $5.0 million for staff salary
increases averaging 5.5 percent. The
full-year costs in 1995 of the salaries
and fringe benefits for new positions
filled during 1994 account for $0.6 million. A change in the accounting treatment of reimbursements from other
agencies is resulting in a $0.4 million
increase in salaries. Fewer vacancies,
more projected reclassifications, and
other salary actions account for $0.7 million. The expense for fringe benefits

(retirement and insurance) is increasing
$0.5 million, which is significantly less
than in previous years, particularly for
health insurance, for which rates stayed
relatively constant.
The overall increase in the cost of
goods and services, $2.1 million, is
exclusively for initiatives. The cost of
goods and services necessary to maintain
Board operations at the current level is
declining slightly, with increases in
some categories largely being offset by
decreases in other categories. Some of
the changes deserve mention. The largest single increase is $1.4 million for
additional space at New York Avenue in
1994 ($0.3 million) and 1995 ($1.1 million). These increases are more than
offset by a number of factors, the largest
of which are a decline of $0.6 million in

Table 2.2
Positions Authorized at the Board of Governors, by Division or Office, 1993-95
Division or office

1993
actual

1994
estimate

1995
budget

Change
1993 to 1994 1994 to 1995

Board Members
Secretary
Legal
Research and Statistics
International Finance
Banking Supervision and
Regulation
Human Resources Management
Concern 1

38
59
84
276
110

42
60
85
276
110

42
60
87
276
110

4
1
1
0
0

0
0
2
0
0

239
48
22

247
50
22

249
50
22

8
2
0

2
0
0

Support Services
Controller
Consumer and Community Affairs
Staff Director for Management
Reserve Bank Operations and
Payment Systems
Information Resources Management2 . . .
Monetary Affairs

260
31
53
11

260
33
57
10

260
35
66
11

0
2
4
-1

0
2
9
1

126
252
66

127
250
68

1
-2
2

0
0
0

1,675

1,697

1,7133

32
17

0
0

0
1

Total, Board operations
Office of Inspector General
Reimbursable IRM support2

1. EEO Concern positions managed by the Division of
Human Resources Management.
2. Positions that provide IRM support to the Federal
Financial Institutions Examination Council for HMDA
processing on a reimbursable basis are shown separately,
as reimbursable IRM support.

32
18

3. Includes eleven summer intern positions and
seventeen youth positions, as well as thirty-three positions
that will be eliminated by year-end.

Board of Governors

the 1995 costs for the Federal Reserve
Communication System, for which there
are no further development charges;
additional income of $0.6 million resulting from the accounting change mentioned above; reimbursement by the
Reserve Banks and other agencies for

use of the mainframe computer; and the
savings target.
Facilities, automation infrastructure,
and automation and telecommunications
initiatives necessary to continue implementation of the Board's ongoing
automation/telecommunications plan are

Table 2.3
Operating Expenses of the Board of Governors, by Object of Expense, 1993-95
Dollars, except as noted
1993
actual

Object of expense
Personnel services
Salaries
Retirement
Insurance
Subtotal

1994
estimate

1995
budget

87,599,597 90,622,438 97,886,832
7,068,246 7,647,768
7,776,886
7,706,077
8,084,796
8,506,959
102,373,920 106,355,002 114,170,677

Change, 1993 to 1994

Change, 1994 to 1995

Amount

3,022,841
579,522
378,719
3,981,082

Goods and services
4,585,941 4,826,011 4,878,152
240,070
Travel
Postage and
1,210,452
1,257,840
1,323,500
47,388
expressage
1,866,344
105,516
Telecommunications ..
1,971,860
1,729,300
Printing and binding ..
1,052,358
1,180,939
1,194,000
128,581
-165,100
370,656
Publications
-334,756
35,900
Stationery and
847,364
894,040
5,324
supplies
852,688
2,861,024
2,826,065
3,592,056
34,959
Software
Furniture and
51,356
equipment
1,257,199
1,308,555
1,112,278
3,228,184
3,584,444
Rentals
231,014
2,997,170
Books and
931,109
981,303
176,213
subscriptions
754,896
2,175,000
2,240,000
297,182
Utilities
1,877,818
Building repairs
2,075,850
and alterations . . .
1,330,905
1,712,693
381,788
Building repairs
2,189,404
2,341,783
87,097
and maintenance .
2,102,307
Contingency
Processing
Center expenses ..
201,100
184,000
32,000
-17,100
Contractual
professional
services
5,175,207
6,291,465
7,020,091 1,116,258
Tuition/registration
and membership
1,444,627
981,023
1,305,630
324,607
fees
Subsidies and
969,565
755,672
contributions
768,186
201,379
Depreciation
7,633,778
306,004
6,563,369 6,869,373
All other
631,883 -3,373,885 -3,772,651 -4,005,768
Subtotal
33,928,675 36,777,355 38,895,123 2,848,680
Total, Board
operations
Extraordinary items . . .
Office of Inspector
General

136,302,595 143,132,357 153,065,800

6,829,762

436,473

980,000

3,215,000

2,932,068

3,110,862

222,274

Percent

3.5
8.2
4.9
3.9

7,264,394
129,118
422,163
7,815,675

8.0
1.7
5.2
7.3

5.2

52,141

1.1

3.9
5.7
12.2
110.7

65,660
-242,560
13,061
-201,000

5.2
-12.3
1.1
-559.9

.6
1.2

41,352
731,032

4.8
25.6

4.1
1,297.4

-196,277
356,260

-15.0
11.0

23.3
15.8

50,194
65,000

5.4
3.0

28.7

363,157

21.2

4.1

152,379

7.0

-8.5

-152,000

-82.6

21.6

728,626

11.6

33.1

138,997

10.6

26.2
4.7
-633.9
8.4

-213,893
764,405
-398,766
2,117,768

-22.1
11.1
-11.8
5.8

5.0

9,933,443

6.9

543,527

2,709,794

Percent

2,235,000
8.2

178,794

6.1

Annual Report: Budget Review, 1994 -95

the major component of the increase in
goods and services. Investments in
maintaining Board facilities are consistent with long-term plans and needed to
ensure reliability, safety, and efficiency.
Operations Budget
by Operational Area

approval of changes in the discount rate,
and other activities related to managing
the nation's monetary policy. The
increase in this area is mainly a result of
automation initiatives and staff salary
increases.
Supervision and Regulation

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 1993-95 are shown
in tables 2.4 and 2.5.
Monetary and Economic Policy
The 1995 budget for monetary and
economic policy is $65,755,000, an
increase of $4,567,000, or 7.5 percent,
over estimated 1994 expenses. Activities in this operational area include the
Board's monitoring and analysis of
developments in the money and credit
markets, setting of reserve requirements,

The 1995 budget for supervision and
regulation is $55,641,000, an increase of
$3,355,000, or 6.4 percent, over estimated 1994 expenses. Supervision of
financial institutions includes review of
examination reports on state member
banks and inspection reports on bank
holding companies prepared by the
Reserve Banks, special studies related to
international applications, direction of
enforcement actions, and regulation of
trust activities. Regulation includes the
formulation of regulations, oversight of
merger and foreign banking activities,
enforcement of compliance with consumer regulations, and regulation of
securities credit. The percentage increase
for this operational area is less than
the percentage increase for the overall
budget because of savings resulting

Table 2.4
Expenses of the Board of Governors for Operational Areas,
Extraordinary Items, and Office of Inspector General, 1993-95 1
Thousands of dollars, except as noted

Type of expense

1993
actual

1994
estimate

1995
budget

59,552
49,141

61,188
52,286

2,736

Change, 1993 to 1994

Change, 1994 to 1995

Amount

Percent

Amount

Percent

65,755
55,641

1.636
3,145

2.7
6.4

4,567
3,355

7.5
6.4

3,014

2,982

278

10.2

-32

-1.1

24,874

26,644

28,687

1,770

7.1

2,043

7.7

Total, Board operations ...

136,303

143,132

153,065

6,829

5.0

9,933

6.9

Extraordinary items
Office of Inspector General .

436
2,710

980
2,932

3,215
3,111

544
222

8.2

2,235
179

6.1

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

1. Operating expenses include allocations for support and overhead.

Board

from a reduction in the rates charged for
use of the new mainframe computer.
These savings offset a significant portion of the cost of salary increases and
new positions in the Consumer and
Community Affairs (9), Legal (2), and
Banking Supervision and Regulation (2)
Divisions, increased requirements for
support from the Division of Information Resources Management (IRM), and
automation initiatives.
Services to Financial Institutions
and the Public
The 1995 budget for oversight of Reserve
Bank services to financial institutions
and the public is $2,982,000, a decrease
of $32,000, or 1.1 percent, from
estimated 1994 expenses. This operational area provides support and oversight of the payments mechanism activities of the Federal Reserve Banks and
Branches, specifically, evaluation of the
operational and pricing performance
of the check-payment activities of the

of Governors

Reserve Banks; oversight of the electronic payments mechanism; and annual
evaluation of the Federal Reserve
System's currency, coin, and food
coupon operations. The slight decline
in costs reflects savings resulting from
slightly lower salary projections for
1995.
System Policy Direction
and Oversight
The 1995 budget for System policy
direction and oversight is $28,687,000,
an increase of $2,043,000, or 7.7 percent, over estimated 1994 expenses.
This operational area covers oversight,
direction, and supervision of Board and
Reserve Bank programs. It includes
programs that directly support Board
members in carrying out their oversight
function for Reserve Bank operations,
budgeting and accounting, financial
examinations, audit and operations
reviews, and automation and communications. Salary increases are the

Table 2.5
Positions Authorized at the Board of Governors for Operational Areas,
Support and Overhead, and Office of Inspector General, 1993-95
1993
actual

Activity
Monetary and economic
policy
Supervision and regulation . . .
Services to financial
institutions and the
public
System policy direction and
oversight
1

Support and overhead

Total, Board operations
Office of Inspector General . . .
Reimbursable IRM support1 ..

1994
estimate

Change, 1993 to 1994
Amount

Change, 1994 to 1995

Percent

Amount

Percent

436
377

438
384

438
397

2
7

.5
1.9

0
13

.0
3.4

167

166

167

-1

-.6

674

688

690

2.1

1,675

1,697

1,713

1.3

32
17

32
18

0
0

.0
.0

0
1

.0
5.9

1. Positions that provide IRM support to the Federal
Financial Institutions Examination Council for HMDA
processing on a reimbursable basis are shown separately,
as reimbursable IRM support.

1995
budget

2. Includes eleven summer intern positions and
seventeen youth positions, as well as thirty-three positions
that will be eliminated by year-end.

Annual Report: Budget Review, 1994 -95

largest single factor in the higher costs
for this area.
Capital Budget
The Board's 1995 capital budget of
$12.5 million provides for facilities
improvements, improved mainframe
services and office automation, and
furniture.
Approximately $5.4 million is budgeted for a number of projects associated with maintaining the integrity of
the existing buildings: $1.5 million to
continue a project to improve heating,
ventilation, and air conditioning in the
Eccles Building; $2.6 million to cover
a portion of the cost of replacing the
chiller system made obsolete by restricChart

2.1

O p e r a t i n g Expenses o f the
B o a r d o f G o v e r n o r s , 1985-95 1
Millions of dollars

150
Current dollars
130
110

tions on the production of freon; and
$1.3 million for ongoing modifications
and other building maintenance projects.
A total of $4.3 million is budgeted to
acquire mainframe disk access storage
devices (DASD), expand the premiseswide network for efficient data communications and data transfers, improve
distributed services, upgrade hardware
and software, and acquire new technology for pilot projects. The budget also
provides $2.0 million to enhance office
automation and telecommunications
equipment and to continue the development and implementation of the Board's
Administrative Systems Automation
Project (ASAP). The remaining funds
are for smaller projects mainly to provide for office automation.
Trends in Expenses
and Employment
The increase in the operations budget
from 1994 to 1995, 6.9 percent, exceeds
the 5.0 percent increase from 1993 to
1994 mainly because of the small merit
pay increase in 1994. The 1995 increase
is lower than the 8.4 percent average
annual rate of increase over the past five
years but higher than the 6.4 percent

1985 dollars2
1990

1985

1995

Chart

2.2

Expenses f o r Personnel Services at
Expenses in millions of

the B o a r d o f G o v e r n o r s , 1 9 8 5 - 9 5 '
Millions of dollars

Year
Current dollars
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995

82.0
84.0
86.2
89.9
95.3
102.4
109.8
122.8
136.33
143.1
153.1

1985 dollars
82.0
81.9
82.0
81.8
83.0
85.6
88.6
95.1
101.6
104.2
107.9

1. Excludes the Office of Inspector General and
extraordinary items. For 1994, estimate; for 1995, budget.
2. Calculated with the GDP price deflator.
3. Number slightly revised from earlier edition.

1985

1990

1995

1. Excludes the Office of Inspector General and
extraordinary items. For 1994, estimate; for 1995, budget.
2. Calculated with the GDP price deflator.

Board of Governors

average annual rate over the past ten
years. The higher rate of growth in the
recent period reflects the substantial
growth in the supervision and regulation
operational area related first to safety
and soundness and more recently to
consumer issues. Charts 2.1-2.5 show
trends over the period from 1985.
Approximately 75 percent of Board
operating expenses are for personnel;
consequently, any discussion of trends
must consider the number of positions.
Over the past ten years the number of
positions authorized for Board operations at year-end has increased from
1,580 to 1,652, an increase of 72
positions, or 4.6 percent.
The number of positions declined
from 1,580 in 1985 to a low of 1,529 in
1990. At that point, position increases in
the supervision and regulation area
began exceeding position decreases in
the other operational areas and in
overhead. Since 1985, the number of
authorized positions for several divisions has increased significantly—
Banking Supervision and Regulation
(106 positions, or 77 percent), Consumer
and Community Affairs (23 positions, or
53 percent), and Legal (26 positions, or

Chart

2.4

A n n u a l Rate o f Change i n O p e r a t i n g
Expenses o f the B o a r d o f G o v e r n o r s ,
1985-951
Percent

1. Excludes the Office of Inspector General and
extraordinary items. For 1994, estimate; for 1995, budget.
Chart

2.5

E m p l o y m e n t and A u t h o r i z e d Positions
at the B o a r d o f G o v e r n o r s ,
1985-95'
Number, in thousands
1.7
Authorized positions
1.6

1.5
Employment
1985

Chart

1990

1995

2.3

Expenses f o r Goods and Services at
the B o a r d o f Governors, 1 9 8 5 - 9 5 1
Millions of dollars
Current dollars

1985 dollars2
J
I
I
I
1. Excludes the Office of Inspector General and
extraordinary items. For 1994, estimate; for 1995,
budget.
2. Calculated with the GDP price deflator.

Year
1985
1986
1987
1988
1989
1990
1991
1992
19932
19942
1995

Employment

Authorized
positions

1,521
1,484
1,457
1,484
1,477 2
1,505
1,517
1,563
1,636
1,634
1,634

1,580
1,540
1,529
1,534
1,533
1,529
1,542
1,639
1,664
1,669
1,652

1. Year-end data. Excludes summer intern and youth
positions as well as positions for the Office of Inspector
General, which for 1995 number 28 and 32 positions
respectively; 1995 figures also exclude 18 positions that
provide support to the FFIEC for processing of HMDA
data as well as thirty-three positions that will be eliminated by year-end. For 1994, estimate; for 1995, budget.
2. Numbers slightly revised from earlier edition.

Annual Report: Budget Review, 1994 -95

44 percent)—with most of the increase
occurring over the past five years. The
main factor in the decline in positions
from 1985 to 1990 was a decrease of
64 positions in the Division of Information Resources Management (IRM). A
further decline of 34 positions in IRM
from 1990 to 1995 has helped to hold
down the overall increase.
Although the number of authorized
positions hasfluctuatedover the past ten
years, the proportion of the Board's
operations budget devoted to salaries
has remained relatively stable at roughly
65 percent. The proportion devoted to
retirement and insurance has increased,
largely because of increases in health
insurance costs, a change in the law that
applies Medicare costs to federal
employees, and changes in the Board
contribution rate for the thrift plan.
Extraordinary Items
The Board's extraordinary items budget
provides funds for four projects. One is
a survey of consumer finances, which
will provide financial data used for a
variety of policy analyses and monetary
policy purposes. This effort reflects the
Board's interest in enhancing the quality
of economic data by obtaining information on the income, assets, debts, pensions, employment, use of financial
services, savings behavior, and other
characteristics of U.S. households. Crosscategorization of the data will allow
important statistical observations, useful
in a wide variety of economic studies.
Included in the budget is $2.8 million
for the 1995 portion of the $3.25 million
required for the survey.
A second project is a survey of plant
capacity to gather information from
manufacturing establishments and produce utilization rates at the three- to
four-digit industry level for year-end
1993 and 1994. The information will be

used to improve the benchmark for data
published monthly in the Board's
Industrial Production and Capacity
Utilization statistical release. The amount
included in the budget, $125,000, is the
Board's share of the cost of conducting
the survey.
Also included in the extraordinary
items budget are funds associated with
1995 audits of Reserve Banks. The 1995
startup costs for the new audit plan—
which will use outside auditors to
review the System Open Market Account,
roughly two Reserve Banks a year, and
the combined financial statement of the
twelve Reserve Banks—are budgeted at
$240,000.
The final project is a survey to help
determine the amount of currency held
abroad and the extent to which counterfeit currency is a problem in foreign
countries. The results of a pilot project
currently under way will influence the
amount needed to complete this survey;
the 1995 budget provides $50,000, but
eventually as much as $200,000 may be
required.
•

23
Chapter 3

Federal Reserve Banks
The 1995 operating budgets for the
twelve Federal Reserve Banks approved
by the Board of Governors total
$1,869.3 million, an increase of
$64.1 million, or 3.6 percent, over estimated 1994 expenses (table 3.1). Not
included in the budgets are the costs of
two Bank special projects—Development
of Currency Authentication Systems
($1.3 million) and Automation Consolidation ($37.8 million).1 Including the
costs of the special projects, the Banks'
1995 budgets total $1,908.4 million, an
increase of $41.0 million, or 2.2 percent.
Employment excluding the staff associated with FRAS is budgeted at 23,240
ANP (average number of personnel), a
decrease of 594 ANP, or 2.5 percent
from estimated 1994 employment.2
Including the FRAS staff, total budgeted
employment is 23,832, a decrease
of 491 ANP from estimated 1994
employment.

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 for the Reserve
Banks). FRAS charges to the Automation Consolidation special project in 1995 are budgeted at
$32.7 million.
2. The term average number of personnel
describes levels and changes in employment at the
Banks. A N P 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.

Expenses for personnel (salaries and
benefits) account for $1,183.8 million,
or 63 percent of the 1995 operations
budget, an increase of $15.2 million, or
1.3 percent, over estimated 1994 personnel expenses (table 3.2). Nonpersonnel
expenses (primarily for building and
automation projects) are budgeted at
$685.5 million, an increase of $48.9 million, or 7.7 percent, over estimated 1994
nonpersonnel expenses.
The following two sections discuss
major initiatives and the budget objective for the Reserve Banks in 1995.
Subsequent sections provide details for
the four operational areas as well as for
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 1995 Reserve Bank budgets provide
for the following initiatives (table 3.3):
• Continuation of the automation consolidation project
• Installation of the Fednet communications network
• Installation of new high-speed currency processors
• Continued expansion of efforts in
supervision and regulation
• Upgrading of check-processing
equipment
• Continuation of the regionalization of
savings bond operations
• Early retirement programs in several
Districts.

Annual Report: Budget Review, 1994 -95

The automation consolidation initiative is budgeted to increase $14.9 million. The largest portion of this amount
is related to FRAS production charges.
Partially offsetting expenditures for this
initiative are savings associated with the
closing of local data processing centers
and reductions in data processing staff.
The 1995 budgeted increase of
$5.4 million for the Fednet communications network is due to additional circuit
rentals, network equipment, and maintenance charges. The increase is being
partially offset by lower costs for local
circuits within Districts and the cost of
District communications services being
assumed by Fednet.
New projects related to currency are
increasing $13.3 million over estimated
1994 expenses. The largest portion of

the increase is due to the installation of
thirty-eight new currency processors
(ISS-3000) in eight Districts in 1995.
The remainder of the increase is associated with higher maintenance and
depreciation expenses, additional staff at
three Reserve Banks to operate the new
currency equipment, and the renovation
and remodeling of cash areas to accommodate the equipment.
Although economic conditions within
the banking industry have improved, the
Reserve Banks have budgeted for several
specific projects related to supervision
and regulation that are increasing the
1995 budget a total of $7.2 million over
estimated 1994 expenses. The increase
is due mainly to the heightened emphasis
on fair lending laws, the development
and implementation of new Community

Table 3.1
Expenses and Employment at the Federal Reserve Banks, 1994 and 1995 1
Category

1994
estimate

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

Change

1995
budget

1,805.2
62.2
1,867.4

Amount

1,869.3
39.1
1,908.4

23,834
489
24,323

23,240
592
23,832

64.1
-23.1
41.0

-594
103
-491

Percentage
3.6
2.2

-2.5
-2.0

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, 1993-95 1
Millions of dollars, except as noted
1993
actual

1994
estimate

1995
budget

Personnel
Nonpersonnel

1,144.5
567.0

1,168.6
636.6

Total

1,711.5

1,805.2

Object

1993 to 1994

1994 to 1995

1,183.8
685.5

2.1
12.3

1.3
7.7

1,8693

5.5

3.6

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

Percentage change

Federal Reserve Banks

Reinvestment Act guidelines and performance measures, and the use of regression analysis in all eligible examinations
of state member banks. Also contributing to the increase is the international
supervisory program, including enhanced
efforts associated with the Foreign Bank
Supervision Enhancement Act (FBSEA);
training and examinations in the mutual
funds and derivatives areas; and the
increased complexity of examinations
resulting from mergers and consolidations and of supervision of risk-related
initiatives.
Upgrading of check-processing equipment is budgeted to increase $2.1 million over estimated 1994 expenses. The
upgrades will enhance the Banks' capability to provide high-quality, innovative, cost-effective check services in
the long run, mainly by automating
manual processes and upgrading equipment and software. Several Banks plan
to acquire and install high-speed image
equipment for processing of government
checks. Many Banks also plan to offer
commercial check image products to
depository institutions and are upgrading sorters and check-processing control-

system software with image-capable
equipment.
In 1992, the Department of the
Treasury decided to consolidate savings
bond operations in the Federal Reserve
System. Five Districts were designated
as regional processing sites—New York
(Buffalo office), Cleveland (Pittsburgh
office), Richmond, Minneapolis, and
Kansas City. The consolidation is
expected to be completed by 1996.
Included in the budget for consolidation
activities is $24.3 million, a decrease
of $1.1 million from estimated 1994
expenses. The decrease is due to staff
reductions in the non-processing Districts.
1995 Budget Objective
In 1994, the Board of Governors
approved a 1995 Reserve Bank budget
objective that provided for an increase
in total expenses, including special
projects, of $67.9 million, or 3.6 percent, over estimated 1994 expenses.
Excluding expenses for special projects,
which were expected to decline in 1995,
the increase was projected to be
4.9 percent. The Board anticipated that

Table 3.3
Major Initiatives of the Federal Reserve Banks, 1994 and 1995
Million of dollars, except as noted

Initiative

Automation consolidation
Fednet
ISS-3000 currency processors
Supervision and regulation
Check-processing equipment
Savings bonds regionalization
Early retirement programs
Total

1994 estimate

1995 budget

Change,
1994 to 1995

Change as
percentage
of 1995
operating
budget

48.4
50.2
11.8
4.8
5.2
25.4
1.1

63.3
55.6
25.1
12.0
7.3
24.3
-18.7

14.9
5.4
13.3
7.2
2.1
-1.1
-19.8

.8
.3
.7
.4
.1
-.1
-1.1

146.9

168.9

22.0

1.2

1,805.2

1,869.3

64.1

3.6

MEMO

Total operating expenses

Annual Report: Budget Review, 1994-95

Table 3.4
1995 Budget Objective and Budget
of the Federal Reserve Banks 1
Percent change from 1994 expenses
Item

Budget
objective

Continuing operating expenses ...
Budget factors
Total excluding special projects .

2.5

Budget
2.0

2.4

1.6

4.9

3.6

-1.3

-1.4

3.6

2.2

MEMO

Special projects
Total including special projects ..

1. See data on expenses in table 3.1.

within this guideline, continuing operations would increase 2.5 percent over
estimated 1994 expenses. Expenses for
several budget factors—automation
consolidation, Fednet, installation of
currency processors, and savings bond
regionalization—would account for
$52.5 million of the overall projected
1995 increase. Table 3.4 compares the
1995 budget objective with the 1995
approved budget.
The 1995 budget increase for continuing operations is $9.8 million less than
anticipated in the budget objective. The
increase is less than the 2.5 percent
target owing to larger-than-anticipated
staff reductions, far exceeding the
$6.0 million savings target established
in the budget objective. The 1995

budget assumes staff reductions of
594 ANP, excluding FRAS, compared
with the budget objective projected
reduction of 436 ANP. Several Banks
have budgeted for lower-than-anticipated
staff levels because of lower volume,
reduced requirements for data processing staff, and greater operational efficiencies. Staff reductions are projected for
all operational areas except supervision
and regulation. The most significant
staff decrease, 288 ANP, is projected for
the commercial check area.
The increase of $32.5 million for
budget factors is $20.0 million below
the target approved by the Board. The
automation consolidation factor is
$21.3 million lower than the objective
owing to greater-than-anticipated savings from the closing of Reserve Bank
data centers, staff reductions, and the
move to the communal operating
environment. The Fednet factor is also
lower than anticipated, increasing
$5.4 million rather than the anticipated
$8.0 million included in the budget
objective, primarily because of savings
associated with local circuit costs and
services being assumed by Fednet. The
budget objective anticipated a savings
of $4.3 million related to the savings
bond regionalization effort currently
under way. The 1995 budget includes

Table 3.5
Operating Expenses of the Federal Reserve Banks, by Operational Area, 1993-95 1
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.

1993
actual

1994
estimate

1995
budget

Percentag e change
1993 to 1994 1994 to 1995

114,617

124,373

135,055

8.5

8.6

193,621

212,276

221,099

9.6

4.2

1,076,914
326,334

1.108.638
359,896

1,118,635
394,529

2.9
10.3

.9
9.6

1,711,486

1,805,185

1,869,317

5.5

3.6

Federal Reserve Banks

a savings of only $1.1 million, mainly four operational areas. Tables 3.7 through
because staffing levels will remain higher 3.10 give details for each area.
than projected: The budget objective
assumed a net decrease of 73 ANP, but
Monetary and Economic Policy
the 1995 budget is based on a net
decrease of only 36 ANP.
The 1995 budget for the monetary and
The 1995 budget for special projects economic policy operational area is
is $2.3 million below the budget objec- $10.7 million, or 8.6 percent, larger than
tive. Lower-than-anticipated charges to estimated 1994 expenses. Approximately
the Automation Consolidation special 40 percent of the increase is due to the
project by FRAS and the Reserve Banks impact of the automation consolidation
are primarily responsible for the variance. budget factor. The budget also reflects
several System and District initiatives,
including the new Statistics and Reserves
Budget by Operational Area
System (STAR) project, the second
Tables 3.5 and 3.6 summarize expenses phase of the Trading Room Automated
and employment for the Reserve Banks' Processing System (TRAPS) project,
Table 3.6
Employment at the Federal Reserve Banks, by Activity, 1993-95 1
Average number of personnel, except as noted2

Category

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

1993
actual

1994
estimate

1995
budget

Percentage change
1993 to 1994 1994 to 1995

746

1,780

1,771

1,725

-.5

-2.6

8,610
2,910

8,349
3,080

8,065
3,161

-3.0
5.8

-3.4
2.6

4,762
5,183

4,668
5,219

4,468
5,074

-2.0
.7

-4.3
-2.8

23,996

Total

751

23,833

23,240

-.7

-2.5

747

-.7

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, 1993-95 1
Thousands of dollars, except as noted

Service

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

Percentage change

1993
actual

1994
estimate

1995
budget

93,018
21,599

98,833
25,540

108,048
27,007

6.3
18.2

9.3
5.7

114,617

124,373

135,055

8.5

8.6

1993 to 1994 1994 to 1995

Annual Report: Budget Review,

1994-95

and other automation projects. The
staffing level remains flat overall, with
slight changes in staffing by District.
Early retirement programs resulted in
staff reductions in the economic policy
determination service that offset the
increases needed to expand expertise in
the assessment and control of financial

system risk resulting from new and
complex financial instruments.
Services to the U.S. Treasury
and Other Government Agencies
The 1995 budget for services to the
Treasury and other government agencies

Table 3.8
Expenses of the Federal Reserve Banks for Services to the U.S. Treasury
and Other Government Agencies, 1993-95 1
Thousands of dollars, except as noted
Percentage change

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

1993
actual

1994
estimate

1995
budget

37,843
36,849
17,677

15,480
64,485
18,867

0
76,493
20,530

-59.1
75.0
6.7

-100.0
18.6
8.8

1,139

2,623

2,681

130.3

2.2

22,558
28,155
21,443
27,956

22,955
34,108
22,326
31,432

25,989
37,525
23,468
34,413

1.8
21.1
4.1
12.4

13.2
10.0
5.1
9.5

193,621

Service

212,276

221,099

9.6

4.2

1993 to 1994 1994 to 1995

1. Excludes special projects.

Table 3.9
Expenses of the Federal Reserve Banks for Services to Financial Institutions
and the Public, 1993-95'
Thousands of dollars, except as noted

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

1993
actual

1994
estimate

1995
budget

Percentage change
1993 to 1994 1994 to 1995

181,892
25,454
6,247
523,584
32,668
69,087
90,339
33,773

194,814
26,610
5,797
532,698
36,783
72,931
86,962
35,846

215,839
27,819
5,069
521,011
39,797
66,413
84,222
37,523

7.1
4.5
-7.2
1.7
12.6
5.6
-3.7
6.1

10.8
4.5
-12.6
-2.2
8.2
-8.9
-3.2
4.7

11,098
17,204
56,516
29,053

8,545
18,789
59,573
29,290

7,118
21,359
64,365
28,100

-23.0
9.2
5.4
.8

-16.7
13.7
8.0
-4.1

1,076,914

1,108,638

1,118,635

2.9

Federal Reserve Banks

is $8.8 million, or 4.2 percent, higher
than estimated 1994 expenses. The
automation consolidation budget factor
is contributing half of the overall increase. Also in the budget are several
projects currently being performed for
the Treasury. The staffing level is budgeted to decrease by 46 ANP as savings
bond operations are consolidated at the
five regional sites.
Services to Financial Institutions
and the Public
Expenses for this operational area, which
encompasses both priced and nonpriced
services, are budgeted to increase
$10.0 million, or 0.9 percent, in 1995.
The staffing level is budgeted to decrease
by 284 ANP, owing mainly to reductions
for the commercial check (288) and
automated clearinghouse (8) services.
The commercial check service
accounts for nearly half of the amount
budgeted for this operational area and
employs 4,775 ANP. The 1995 budget
for this service reflects a decrease in
expenses of $11.7 million, or 2.2 percent, a result of projections of lower
volume, greater operational efficiencies,
and early retirement programs; the
staffing level is expected to decline by

288 ANP, or 5.7 percent, from the
estimated 1994 level. Although forecasts differ from District to District
owing to the varied effect of same-day
settlement, growing competition, industry consolidation, and new check
products, check volume overall has
stabilized from the substantial loss in
1994, and a 0.1 percent decrease is
anticipated for 1995. The expense reductions and relatively constant volume
lead to a projection of a unit cost
reduction of 3.4 percent for the commercial check service in 1995.
Expenses for the currency service are
expected to increase $21.0 million, or
10.8 percent, in 1995, mainly because of
the installation of the new cash processors. While offices that have completed
installation of the new ISS-3000 processors are trimming staff owing to
improved efficiencies, offices that will
migrate to second-generation equipment
in 1995 are increasing staff during
the transition period. Overall, currency
operations will show a net increase of
10 ANP. A 3.4 percent volume increase
is projected in currency operations, with
unit cost rising 7.2 percent.
The budget for the automated clearinghouse (ACH) service is declining
$2.7 million, or 3.2 percent, primarily

Table 3.10
Expenses of the Federal Reserve Banks for Supervision and Regulation, 1993-95 1
Thousands of dollars, except as noted

Service
Supervision of District
financial institutions
Consumer affairs
Administration of laws and regulations
related to banking
Studies of banking and financial
market structures
Total
1. Excludes special projects.

Percentag e change

1993
actual

1994
estimate

1995
budget

224,679

219,127
28,578

238,782
33,870

-2.5
...

9.0
18.5

86,585

96,087

103,527

11.0

7.7

15,070

16,105

18,350

6.9

13.9

326,334

359,896

394,529

10.3

9.6

1993 to 1994 1994 to 1995

Annual Report: Budget Review, 1994 -95

because of the movement toward a
centralized applications operating environment. ACH volume is expected to
increase 13.3 percent.
Expenses for the funds transfer service
are expected to decrease $6.5 million, or
8.9 percent, owing mainly to the fullyear impact of savings associated with
conversion to the centralized funds
transfer software.
Supervision and Regulation
The 1995 budget increase for the supervision and regulation operational area
of $34.6 million, or 9.6 percent, over
estimated 1994 expenses reflects a staff
increase of 81 ANP. The staff increase is
necessary mainly to support several
initiatives, including a major expansion
of the Foreign Banking Organization
supervision program, expanded fair
lending/CRA initiatives and workloads,
examinations related to mutual funds

and derivatives, more-complex examinations resulting from mergers and consolidations, and automation and training
efforts. Minor staff decreases are planned
for several Districts owing to increased
productivity and improved banking
conditions.
Budget by Object of Expense
Personnel expenses—officer and employee salaries, other compensation to
personnel, and retirement and other
benefits—account for 63 percent of
Reserve Bank operating expenses budgeted for 1995. The amount budgeted
for 1995 is 1.3 percent greater than
estimated 1994 expenses (table 3.11).
Salaries and other personnel expenses,
which account for 49 percent of budgeted
1995 operating expenses, are expected
to be $11.5 million, or 1.3 percent,
greater than estimated 1994 expenses.
Expenses for salaries are expected to

Table 3.11
Operating Expenses of the Federal Reserve Banks, by Object, 1993-95 1
Thousands of dollars, except as noted
Object

1993

1994

estimate

budget

Percentage change

1995

actual

1993

to 1994 1994 to 1995

PERSONNEL

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

88,072
774,343
30,721
251.403
1,144,539

91,673
787,148
30,828
258,941

92,674
809,455
19,048

4.1
1.7
.3

1.1
2.8
-38.2
1.4

1,168,590

262,639
1,183,816

3.0
2.1

55,726
183,649
32.488

53.660
186.889
32,089

54,170

-3.7

1.0

161,531
30,857

79,118
41,974
148,387

78,989

79,081

1.8
-1.2
-.2

-13.6
-3.8
.1

42,699
154.166

44,086
159,596
-50,148

70,580

-48,845
136.948

566,947

636,595

1,711,486

1,805,185

1.3

NONPERSONNEL

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

-46,974

1.7

3.2

206,327

3.9
4.0
88.7

3.5
2.7
50.7

685,500

12.3

7.7

1,869,317

5.5

3.6

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

Federal Reserve Banks

increase $23.3 million, or 2.7 percent.
Merit pay accounts for a large portion
of this increase. Also contributing to
additional salary expenses are promotions, reclassifications, and structure
adjustments. These increases are being
partially offset by savings of $16.4 million from staff reductions. Short-term
position vacancies (lag) and lower
overtime expenses are also contributing
to savings. The decrease in other personnel expenses ($11.8 million) reflects a
decline in the use of contract staff after
the transition to FRAS and a decline in
separation pay in 1995 after significant
adjustments for data processing staff in
1994.
Expenditures for retirement and other
benefits, which account for 14 percent of
budgeted 1995 operating expenses, are
expected to be $3.7 million, or 1.4 percent, greater than estimated 1994
expenses. Most of the 1995 increase is
due to three factors: Social security
expenses are increasing $1.0 million,
other benefit payments are increasing
$1.6 million, and thrift plan expenses
are increasing $0.8 million. The increases
in social security and thrift plan
expenses, the result of merit salary
programs, are being partially offset by
staff reductions. The unusually high
increase in other benefit payments is due
to a subsidy to New York employees
who use public transportation. Health
care costs, which had been increasing
rapidly, are projected to decrease in
1995 for both active and retired
employees. Coverage for active employees is budgeted at $0.4 million, or
0.6 percent, below estimated 1994
expenses. Retiree medical expenses are
budgeted at $0.3 million, or 0.5 percent,
less than estimated 1994 expenses,
mainly because of staff reductions, an
emphasis on managed care, lower claims
experience, and lower rates due to
administrative efficiencies.

Nonpersonnel expenses, which account
for 37 percent of budgeted 1995 operating expenses, are projected to increase
7.7 percent over estimated 1994
expenses.
Expenses for equipment are budgeted
to decrease 13.6 percent, accounting for
approximately 9 percent of budgeted
1995 operating expenses. The most
significant factor is a shift of $20.2 million from Chicago to FRAS related to
the transfer of the Network Management
Control Center (NMCC)—equipment
rentals of $12.9 million, depreciation
expense of $4.6 million, and repairs and
maintenance costs of $2.7 million. In
addition, equipment rentals excluding
rentals related to the NMCC are decreasing $11.6 million, mainly owing to
the conversion of local circuits to
Fednet. Partially offsetting these
decreases are increases in equipment
depreciation and equipment maintenance
of approximately $7.2 million, which
are due mainly to currency- and checkprocessing equipment.
Shipping expenses, which account for
approximately 4 percent of Reserve
Bank budgeted 1995 operating expenses,
are expected to increase $0.1 million,
or 0.1 percent, over estimated 1994
expenses. The increase will be partially
offset by reduced use of postal services
and a slight decrease in total Interdistrict
Transportation Service (ITS) costs from
the 1994 level.
Building expenses, which account for
about 9 percent of budgeted 1995
operating expenses, are expected to
increase 3.5 percent over estimated 1994
expenses. The increase is driven by
increased property depreciation resulting from building improvements and
renovations, some of which are related
to the installation of ISS-3000 currency
processors.
"Other" nonpersonnel expenses are
budgeted to increase $69.4 million over

Annual Report: Budget Review, 1994 -95

facility and a new building for the
Birmingham Branch; funds for land and
architectural fees for both projects are
included in the 1995 capital budget.
New York will continue renovation of
its head office building, a project that
will be spread over ten years or more
and will result in upgrading of the entire
building.
Capital Outlays
For 1995, capital outlays (including
For the next three years, the Reserve funding for FRAS) are budgeted at
Banks' capital budget will be dominated $378.5 million, an increase of $89.1 milby proposed or ongoing building projects lion, or 31 percent, over estimated 1994
in Cleveland, Minneapolis, Atlanta, and expenses (excluding FRAS, the increase
New York. Cleveland's building will is $104.2 million) (table 3.12). The
be extensively renovated to extend its increase is driven by the building
useful life, improve life safety systems, projects in Cleveland, Atlanta, and
and enhance the security of valuables Minneapolis.
handled by the Bank. An annex will be
Outlays for buildings are budgeted at
constructed on the bank-owned parking $123.5 million, about 33 percent of total
lot adjacent to the existing building. capital outlays. The budget includes the
During 1995, the structural steel for the new building programs in Minneapolis
annex will be erected and the structure ($38.5 million), Atlanta ($3.4 million),
fully enclosed.
and Birmingham ($3.3 million), the
Excavation and foundation work for renovation and expansion project in
the new building in Minneapolis will Cleveland ($37.7 million), and, in
proceed in 1995; construction is expected New York, floor-by-floor modernization
to be completed in 1997. Atlanta has ($5.6 million) and cafeteria modernizabudgeted for a proposed new head office tion ($2.9 million). San Francisco has
estimated 1994 expenses, accounting for
approximately 11 percent of budgeted
1995 operating expenses. The increase
is due primarily to higher data processing charges from FRAS and higher data
communications charges as a result of
Fednet.

Table 3.12
Capital Outlays of the Federal Reserve Banks, by Class of Outlay, 1993-95
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

1994
estimate

1995
budget

143,739
53,825

133,301
64,795

121,866
123,463

-7.3
20.4

-8.6
90.5

20,840
36,444
1.016
13,435
5,010
4,441

15.240
49.129
6,123
8,050
539
12,249

16,338
73,852
15,100
14,643
1,054
12,206

-26.9
34.8
502.7
^to.i
-89.2
175.8

7.2
50.3
146.6
81.9
95.5
-.4

278,750

289,426

378,522

3.8

30.8

1. Includes FRAS capital of $78,883 thousand in 1993,
$49,983 thousand in 1994, and $40,366 thousand in 1995.
2. Includes FRAS capital of $56 thousand in 1994 and
$17 thousand in 1995.

Percentage change

1993
actual

1993 to 1994 1994 to 1995

3. Includes FRAS capital of $2,475 thousand in 1993,
$9,103 thousand in 1994, and $3,695 thousand in 1995.

Federal Reserve Banks

budgeted for several remodeling and
renovation projects, mostly for its
northern Branches ($7.5 million). Almost
all Districts have budgeted for renovation projects in cash-processing areas,
mainly to prepare for the installation of
ISS-3000 cash processors and materialshandling systems ($7.9 million).
Outlays for data processing and data
communications are budgeted at
$121.9 million, approximately 32 percent of total capital outlays. Included in
the budget is check-imaging equipment
for several Banks ($17.1 million), to
support image capture, archival, and
retrieval functions for the processing of
government checks. Several Banks have
included this equipment in their capital
budgets because the Treasury has
requested that all Reserve Banks be
fully capable of capturing and archiving
images of all government checks by
mid-1996, to coincide with the Treasury's capability to access these images
through a new image-retrieval system.
Dallas has included medium-speed
image-processing systems for its
Branches ($0.8 million). In addition,
the Reserve Banks have budgeted to
replace check reader-sorters and related
check equipment ($17.4 million), to
increase productivity and to position
themselves for commercial check image
processing.
Other major data processing and data
communications outlays in the 1995
Reserve Bank budget include $18.9 million for input devices—mainly PC
workstations—in all districts ($18.5 million) and FRAS ($0.3 million). CPU
equipment is budgeted at $12.2 million,
mainly for FRAS ($10.2 million). The
CPU equipment at FRAS is required to
support the movement of the remaining
Districts to consolidation sites and into
a standardized or communal Districtunique environment; the remaining CPU
equipment is needed for check opera

tions in four Districts. FRAS has also
budgeted $16.7 million for network
operations equipment to complete the
Fednet communications system. Storage
devices account for $15.8 million. FRAS
has requested $9.1 million for DASD
and tape equipment, and New York has
budgeted $3.3 million for DASD to
meet additional capacity requirements.
The remainder of the outlays for data
processing and data communications
include $4.4 million for LAN equipment, $3.1 million for telephone equipment, $2.3 million for printers, and
$1.1 million for video-conferencing
equipment.
Furniture and other equipment purchases are budgeted at $90.2 million,
about 24 percent of total capital outlays.
The planned installation of ISS-3000
cash processors and associated equipment account for approximately 60 percent of these outlays ($54.4 million).
The Banks plan to spend another
$7.9 million on other cash-related equipment and $12.3 million to replace
furniture and workstations.
Land and other real estate purchases
are budgeted at $15.1 million; $14.7 million is related primarily to the proposed building projects in Atlanta and
Birmingham.
Building machinery and equipment
outlays are budgeted at $14.6 million.
Included are upgrades in several Districts, including an elevator upgrade in
Boston ($2.0 million), replacement of
the security, life safety, and HVAC
computer in Richmond ($2.0 million),
and replacement of central plant equipment in Kansas City ($1.1 million).
Software purchases are budgeted at
$12.2 million in 1995. Check-image
software accounts for almost one-third
of this amount ($3.4 million). FRAS
has budgeted $3.7 million for software
necessary to operate the four CPUs that
will be upgraded in 1995, and Atlanta

Annual

Report:

Budget

Review,

1994

has budgeted $1.0 million in support of
the Fedline system.
Trends in Expenses
and Employment
Over the ten years ending with the 1995
budget, operating expenses of the
Reserve Banks have increased an average of 5.3 percent per year (chart 3.1).
Over the past five years, the increase has
averaged 5.9 percent a year. Increases in
expenses were higher after 1990 as a
result of expanded bank supervision
needs and the transition to a consolidated data processing environment.
The number of employees at the
Reserve Banks, excluding FRAS staff,
has increased from 22,984 in 1985 to
23,240 in 1995, an increase of 256 ANP
(chart 3.2). Since 1985, staffing has
increased in supervision and regulation
owing to the Federal Deposit Insurance
Corporation Improvement Act of 1991
(1,249 ANP), in the currency service
owing to volume growth (90 ANP), and
in public programs intended to enhance
communications with the public (81
ANP). Partially offsetting these increases

Chart

3.1

-95

have been decreases in the commercial
check service (327 ANP), the overhead
service (250 ANP), securities/noncash
operations (209 ANP), the ACH and
funds transfer services (194 ANP), fiscal
agency operations (56), and the monetary
policy administration service (69 ANP).
The decreases have been due largely to
consolidation of operations and operational efficiencies throughout the System.

Volume and Unit Costs
The volume of measured services as a
whole in 1995 is expected to increase
2.0 percent over 1994 volume, and the
unit cost is expected to decline 1.3 percent (table 3.13). Since 1990, volume
has increased at an average annual rate
of 1.2 percent and unit cost at a rate of
2.2 percent. The decrease in unit cost
expected for 1995 reflects a net decrease
in the payments area. For commercial
check services, the largest component
of the overall index, the unit cost is
expected to decrease 3.4 percent, and for
cash services, the second largest component, to increase 6.3 percent.

Chart

3.2

O p e r a t i n g Expenses o f the

E m p l o y m e n t at the

Federal Reserve Banks, 1 9 8 5 - 9 5 '
Billions of dollars

Federal Reserve Banks, 1 9 8 5 - 9 5 '
ANP, in thousands

1985

1990

1995

1. Excludes expenses for special projects. For 1994,
estimate; for 1995, budget.
2. Calculated with the GDP price deflator.

1985

1990

1995

1. Includes staff for special projects and FRAS. For
1994, estimate; for 1995, budget. See text note 2 for
definition of ANP.

Federal Reserve Banks

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 f r o m 1994 to 1995

Service

Volume

Unit cost

2.0
-.1
13.3
2.8
-.1

-5.2
-3.4
-14.3
-11.4
8.0

Cash1

3.2

6.3

Fiscal

-.2

8.8

Securities and noncash

1.8

All measured services

2.0

-1.3

Payments
Commercial check
Automated clearinghouse
Funds transfer
Other checks

1. Includes currency and coin services.

1994 Budget Performance
The 1994 Reserve Bank operations
budgets approved in December 1993
totaled $1,808.2 million, an expected
increase of $96.7 million, or 5.6 percent,
over actual 1993 expenses. The Reserve
Banks now estimate that 1994 expenses
were $1,805.2 million, $3.0 million, or
0.2 percent, under the approved budget.
At this estimated level of spending, the
increase over actual 1993 spending on
operations was 5.5 percent.
Six Banks expect to be within
1.0 percent of their approved 1994
budgets. Two Banks expect overruns
of more than 1.0 percent—St. Louis
(3.1 percent) and Minneapolis (1.2 percent); in both Districts the overruns
were due mainly to higher-thananticipated expenses for automation
consolidation and Fednet. Four Banks
expect underruns of more than 1.0 percent—San Francisco (2.5 percent),
Richmond (1.5 percent), Philadelphia
(1.4 percent), and Cleveland (1.1 percent). San Francisco expects benefits
costs to have been lower as a result of a
capping of the Bank's contribution to
retiree medical benefits, lower claims

experience, and the switch to managed
care. Richmond anticipates greater-thanbudgeted recoveries from FRAS for
host-site services provided. At Philadelphia, the underrun was due mainly to
staff reductions resulting from savings
bond regionalization, check volume
losses resulting from same-day settlement, and the Bank's early retirement
program. Cleveland's underrun resulted
from delays in equipment acquisition
and favorable health care experience. •

Part II
Special Analysis

39
Chapter 4

Supervision of Foreign Bank
Operations in the United States
In response to concerns that the
framework for supervising the U.S.
operations of foreign banks needed to be
strengthened, the Foreign Bank Supervision Enhancement Act of 1991
(FBSEA) gave the Federal Reserve
significant new authority with respect to
foreign banks in the United States. The
legislation established, among other
things, uniform federal standards for the
entry and expansion of foreign banks
in the United States; it also clarified
the role of the Board of Governors in
examining the U.S. operations of foreign
banks.
Before the passage of FBSEA in
December 1991, the Federal Reserve
had residual authority to examine the
U.S. branches and agencies of foreign
banks but was required, by the International Banking Act of 1978, to use, to
the extent possible, the examination
reports of other state and federal banking agencies. FBSEA amended this
provision of the International Banking
Act to explicitly authorize the Federal
Reserve to conduct and coordinate
examinations of foreign banks' U.S.
branches and agencies and their representative offices. FBSEA also requires
that U.S. branches and agencies be
examined on-site at least once every
twelve months.

U.S. branches, agencies, and subsidiary
commercial banks. The vast majority of
these operations are conducted in U.S.
branches and agencies, which together
had $696 billion in total assets, or
17 percent of total banking assets in this
country, at the end of 1993. The growth
in foreign banks' U.S. branches and
agencies since 1978 is shown in chart
4.1, and the growth of their importance
among U.S. banking institutions as a
source of credit for U.S. businesses over
the same period is shown in chart 4.2. At
the end of 1993, U.S. branches and
agencies of foreign banks held 27 percent of all business loans booked in
U.S. banking offices. The share increases
five to six percentage points, to about
33 percent, if loans to U.S. businesses
from offshore shell branches controlled
by U.S. branches or agencies of foreign
banks are taken into account.
In addition to their U.S. banking
operations, some foreign banks also
Chart

4.1

T o t a l Assets o f U.S. Branches and
Agencies o f F o r e i g n Banks, 1 9 7 8 - 9 3 1
Billions of dollars
Current dollars
600

400

Extent of U.S. Operations
Foreign banks have a significant presence in the U.S. banking market. At the
end of 1993, 295 foreign banks were
operating in the United States, with
aggregate assets of $855 billion in their

200
1978 dollars
1978

1983

1988

1993

1. End-of-year data; 1978 dollars calculated with GDP
deflator.

Annual Report: Budget Review, 1994 -95

Chart 4.2
Share of U.S. Branches and Agencies
o f Foreign Banks in Lending to
U.S. Businesses, 1978-93 1
Percent

1978

1983

1988

1993

branch and agency examinations, compared with about 100 in 1991.
Implementing these provisions of
FBSEA has required a substantial
increase in Federal Reserve examiner
staff. Increased resources have also been
devoted to examining nonbank financial
subsidiaries of foreign banks. From
1991 to 1993, the number of international
examiners in the Federal Reserve System
increased from 106 to 289, and the
international staff as a share of total
Federal Reserve examiner staff rose
from 10 percent to about 20 percent.

1. End-of-year data.

Coordination among State
and Federal Agencies
conduct substantial financial operations
in the United States through nonbank
U.S. financial companies, principally
firms engaged in capital markets activities. For example, some foreign banks
conduct a large part of their global
swaps business through U.S. nonbank
financial subsidiaries. Such nonbanking
activities of foreign banks in the United
States must be approved by the Federal
Reserve, which also supervises the
nonbank financial subsidiaries.
Growth of the Federal Reserve's
Responsibilities
The Federal Reserve's increased authority to examine the U.S. branches and
agencies of foreign banks has had
significant budgetary implications. Since
the passage of FBSEA, the Federal
Reserve has acted to ensure that all
state- and federally licensed branches
and agencies are examined on-site at
least once every twelve months. In
carrying out the new responsibilities,
Federal Reserve examiners are conducting more U.S. branch and agency
examinations. In 1994 the Federal
Reserve conducted 610 full-scope U.S.

Since passage of the International Banking Act of 1978, the Federal Reserve has
cooperated with other state and federal
banking supervisory agencies to avoid,
whenever possible, duplicate examination of the U.S. offices of foreign
banking organizations, some of which
operate in the United States through
numerous entities and across several
jurisdictions. During the past year, these
efforts have been enhanced through
development by the state and federal
banking supervisory agencies of a more
formal framework for coordinating their
supervisory responsibilities with respect
to foreign banks, including their examination functions.
Under the new program, the supervisory agencies will communicate with
each other to a greater extent about their
examination plans, their examination
results, and, where applicable, their
proposed follow-up actions. To promote
the effective targeting of resources, the
agencies will also analyze the risks to a
foreign bank's U.S. operations posed by
the financial condition of the foreign
bank as a whole. The state and federal
agencies implementing the program will
be equal partners in all aspects of the

Supervision of Foreign Bank Operations in the United States
program, and the Federal Reserve will
act as the coordinating agency, where
appropriate.
One of the principal objectives of the
new program is to ensure that each U.S.
banking office of a foreign banking
organization is subject to only one
safety and soundness examination a
year, unless the condition of that office
warrants more frequent examination.
The higher level of coordination will
also minimize the imposition of multiple
supervisory actions and follow-up reporting obligations on foreign banks by the
several state and federal banking
supervisory agencies.
•

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 1995 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
US. 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.

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 1995
In 1994 the Board approved a 1995
private sector adjustment factor for
Reserve Bank priced services of
$94.7 million, a decrease of $8.9 million, or 8.6 percent, from the PSAF of
$103.6 million targeted for 1994.
Asset Base
The value of Federal Reserve assets to
be used in providing priced services in

Table A. 1
Pro Forma Balance Sheet for Federal Reserve Priced Services, 1994 and 1995 1
Millions of dollars
Item

1994

1995

ASSETS

Short-term assets
Imputed reserve requirement on clearing balances
Investment in marketable securities
Receivables2
Materials and supplies2
Suspense and difference2
Prepaid expenses2
Items in process of collection
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
.0
16.1
3,198.9

619.8
5,577.9
62.8
5.7
.1
16.1
2,592.5
9,220.7

350.5
183.1
32.1
.6

Total long-term assets

8,874.9
412.1
113.4
12.6
3.8

566.3
9,787.0

Total assets

541.9
9,416.8

LIABILITIES

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

5,935.9
3,198.9
85.9

6,197.7
2,592.5
84.7
9,220.7

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

8,874.9
3.8
161.6

174.7

165.4

9,395.4

9,040.3

391.5

376.5

9,787.0

9,416.8
to priced services of $0.4 million for 1994 and $0.4
million for 1995.
4. Imputed figures representing the source of financing
for certain priced-service assets.

Special Categories of System Expense

1995 is estimated at $9,416.8 million
(table A.l). The value of assets assumed
to be financed through debt and equity
in 1995 is $622.9 million, a decrease
of $28.6 million, or 4.4 percent, from
1994 (table A.2); the decrease is due
primarily to lower priced asset levels at
the Reserve Banks and FRAS.

Cost of Capital, Taxes,
and Other Imputed Costs
For 1995, a pretax rate of return on
equity of 12.1 percent, or $45.6 million,
is planned. Other required PSAF recoveries for 1995—imputed sales taxes,
imputed FDIC insurance assessment,
and Board expenses—total $33.0 mil-

Table A.2
Derivation of the Private Sector Adjustment Factor (PSAF), 1994 and 1995
Millions of dollars, except as noted
1994

1995

85.9
565.5
651.5

84.7
538.2
622.9

Cost of capital (percent)3
Short-term debt
Long-term debt
Pretax return on equity 4
Weighted average long-term cost of capital

4.3
8.7
12.7
11.5

3.5
8.2

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

15.6
26.0
58.4

15.4
25.4
59.2

30.4

31.0

Capital costs5
Short-term debt
Long-term debt
Equity
Total

3.7
15.2
49.7
68.6

3.0
13.2
45.6
61.7

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

12.5
19.8
2.7
35.0

11.3
19.0
2.7
33.0

103.6
15.9
17.0

94.7
15.2
15.7

Item
P S A F COMPONENTS

Assets to be financed1
Short-term
Long-term 2
Total

Tax rate (percent)

12.1

10.9

REQUIRED P S A F RECOVERIES

Total PSAF recoveries
Millions of dollars
As a percentage of capital ..
As a percentage of expenses
1. The asset base for priced services is directly
determined.
2. Total long-term assets less capital leases that are
self-financing.
3. All short-term assets are assumed to be financed by
short-term debt. Of the total long-term assets, 31 percent
are assumed to be financed by long-term debt and
69 percent by equity. The data are average rates paid by
the fifty 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 1989-93
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.

Annual Report: Budget Review, 1994 -95

lion (table A.2). The $8.9 million decrease in PSAF recoveries is attributable
mainly to lower priced asset base levels
and a lower cost of capital planned for
1995.
Capital Outlays
In accordance with generally accepted
accounting principles (GAAP), the Federal Reserve System depreciates the cost
of fixed assets over their estimated
useful lives. In the federal government,
where no requirement for depreciation
accounting exists, the cost of fixed
assets is typically recorded as an
expense at the time of purchase. However, the Policy and Procedures Manual
for Guidance of Federal Agencies of
the General Accounting Office, which
governs accounting procedures in the
federal government, specifies in title 2
the use of depreciation accounting for
business types of operations and for
activities that recover costs from reimbursements or user charges. Certain
activities of the Federal Reserve meet
both these criteria. Under GAAP, the
cost of acquiring an asset that is
expected to benefit an entity over future
periods should be allocated over those
periods. Such treatment allows a more
realistic measurement of operating
performance.
The Banks capitalize and depreciate
all assets that cost $1,500 or more; they
may either capitalize or expense assets
costing less. The capitalization guideline
for the Board is $1,000.
The Banks maintain a multiyear plan
for capital spending. The Board, in turn,
requires the Banks to budget annually
for capital outlays by capital class to
estimate the effect of total operating and
capital spending. During the budget
year, the Banks must submit proposals
for major purchases of assets to the
Board for further review and approval.

The Board of Governors reviews capital
expenditures for the Board.

Special Projects
For 1995 the Board of Governors has
approved research and development for
two projects intended to provide longrange benefits to the Federal Reserve
and the banking industry. Because the
spending on these special projects is
relatively high and short-term, the Federal Reserve accounts for them separately
from its operating expenses.
Development of Currency
Authentication Systems
In 1989, the Federal Reserve initiated
a special project for development of
currency authentication systems. The
project has included research and
development costs for the Optical
Counterfeit Detection Systems (OCDS),
an effort to improve counterfeitdetection capabilities that will enhance
the currency service provided to financial institutions and the public. Other
efforts expected to increase the Federal Reserve's ability to detect counterfeit currency include the development
of magnetics-detection systems, development of a universal magnetic authentication detector (UMAD), and a universal currency authentication sensor
(UCAS). The OCDS project was
discontinued in 1993, and the major
portions of the UCAS and UMAD
projects were completed in 1994.
The introduction of a new currency
design will require new research and
development work on the UMAD and
UCAS detectors, and changes in both
sensor hardware and software will likely
be required. Preliminary design work
began in 1994, and changes should be
implemented in late 1996 or early 1997.

Special Categories of System Expense

The 1995 project budget is $1.3 million. Including 1995 budgeted expenses,
expenditures on this special project to
date total $18.6 million.
Automation Consolidation
In 1992, the Federal Reserve System
began to incur expenses for the Automation Consolidation special project, an
effort to consolidate all mainframe
computer operations at three sites within
the System—Richmond, Dallas, and
New York. During 1992, work focused
on establishing a project plan and on
staffing and equipping the three data
centers. In 1993 and 1994, the emphasis was on the conversion of District
workloads and the transition of District EPS images to the production
environment. In 1995, all districts except
New York will be in the District-unique
environment and central applications
will be in place.
The 1995 budget includes $37.8 million in support of these efforts. Including
budgeted 1995 expenses, expenditures
on this special project to date total
$194.8 million.
Currency Printing
The Bureau of Engraving and Printing
produces currency; the Federal Reserve

Table A.3
Currency in Circulation, New Notes Issued,
and Notes Destroyed, 1994 Estimate
Millions of pieces
Notes
in
circulation1

New
notes
issued2

Notes
destroyed

1
2
5
10
20
50
100

5,823
492
1,381
1,303
3,810
844
2,226

4,270
27
1,013
803
1,914
221
547

3,582
4
950
737
1,597
165
206

Total

15,879

8,795

7,241

Dollar
denomination

1. As of October 1994.
2. Figures for new notes issued do not include
additions to inventory at the Reserve Banks.

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
circulation and destroying it, be assumed
by the Federal Reserve System (table
A.4). To minimize the number of new

Table A.4
Costs to the Federal Reserve of New Currency, 1993-95
Millions of dollars, except as noted
1993
actual

1994
estimated

1995
budget

Percentage
change,
1994 to 1995

Printing 1
Shipping from Washington and Western facilities
Reimbursement to the Treasury
for issuance and retirement
Other2

346.2
7.4

357.7
8.2

358.9
8.5

.3
3.7

2.3
.7

2.5
1.2

8.7
71.4

Total cost of currency

356.6

368.9

371.1

Item

1. Based on 8.4 billion notes in 1993, 9.3 billion notes in 1994, and 9.7 billion notes in 1995.
2. Includes intrasystem shipment of fit currency, purchase of currency pallets, and shipment of currency pallets to the Bureau of Engraving and Printing.

Annual Report: Budget Review, 1994 -95

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 packaging and transporting the
currency.
•

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 92 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
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
Table B.l
Income of the Federal Reserve System,
1993 and 1994
Millions of dollars
Source

1993
actual

1994
estimate

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

5.6
16,890.7
1,249.2
757.3
11.4

11.5
19,247.1
894.5
733.2
22.7

Total

18,9143

20,908.9

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
$16.0 billion for 1993 and are estimated
to be $20.5 billion for 1994.

Annual

Report:

Budget Review, 1994 -95

Table B.2
Distribution of the Income of the Federal Reserve Banks, 1993 and 1994
Millions of dollars
1993
actual

1994
estimate

18,914

20,909

1,475
183

1,575
225

17,256

19,109

-201

2,398

Assessments by the Board
Board expenses
Cost of currency

140
356

147
368

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

195
348

212

15,987

20,464

Item
Current income 1
LESS
2

Current expenses of Reserve Banks
Operating expenses
Costs of earnings credits
EQUALS

Current net income
PLUS
3

Net additions to, or deductions from (-), current net income
LESS
4

Cost of unreimbursed Treasury services

282

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 $131.4 million in 1993 and $77.7 million in 1994 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 21 projects in various stages
of completion, since 1979 has completed 123 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 51
others before completion. The reports
are available directly from the GAO.

Table C.l
Active GAO Projects Relating to the Federal Reserve
Subject
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
Relationship of the operations of the Federal Reserve System to the federal budget
Accounting for derivatives
Trust assets
Foreign banking
Audit of the Federal Reserve Bank of Dallas
Losses to the Bank Insurance Fund
Bank chartering and changes in control
Bank mutual fund profitability
Credit availability
Overseas counterfeiting and money laundering
FDICIA provisions
OTC derivative sales practices
CFTC's exemptions
Equitable Escheatment Act of 1994

Annual

Report:

Budget

Review,

1994

-95

Table C.2
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

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

Annual

Report:

Budget Review, 1994 -95

Table C.2
Completed GAO Reports Relating to the Federal Reserve System—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
F R B Examinations and Inspections D o 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
Strengthening the Framework for Supervising International Banks
Insider Problems and Violations Indicate Broader Management
Deficiencies
U.S. Credit Card Industry: Competitive Developments Need to be
Closely Monitored
Better Guidance Is Needed for Real Estate Evaluations
Treasury Securities Auction
Divergent Loan Loss Methods Undermine Usefulness
of Financial Reports
Interstate Banking: Experiences in Three Western States

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

12/13/93

GGD-94-68

3/21/94

GGD-94-88

3/30/94

GGD-94-23
GGD-94-144
AIMD-94-165R
AIMD-95-8
GGD-95-35

4/28/94
5/24/94
8/25/94
10/31/94
12/30/94

Federal Reserve System Audits

tions. In addition, it coordinates its
efforts with other governmental and
The Board's Office of Inspector General nongovernmental agencies to promote
functions in accordance with the Inspec- economy and efficiency and to detect
tor General Act of 1978, as amended. and prevent fraud and abuse in activities
The OIG plans and conducts audits and administered or financed by the Board.
investigations of the programs and opera- The OIG keeps the Congress and the
tions of the Board and its delegated Chairman of the Board fully informed
functions at the Federal Reserve Banks. about serious abuses and deficiencies
The OIG also reviews existing and and about the status of any corrective
proposed legislation and regulations for actions.
economy and efficiency. It recommends
During 1994, the OIG reported on
policies and supervises and conducts eight audits (table C.3) and conducted a
activities that promote economy and number of follow-up reviews. In addiefficiency and that prevent and detect tion, the OIG closed five investigations
waste, fraud, and abuse in Board and and performed numerous legislative and
Board-delegated programs and opera- regulatory reviews.
•
Office of Inspector General

Table C.3
Completed OIG Audit Reports Relating to the Federal Reserve System, 1994
Report
Audit
Audit
Audit
Audit
Audit
Audit

of
of
of
of
of
of

the Board's Oversight of Federal Reserve Bank Building Projects ...
HMDA Processing System: Project Management
HMDA Processing System: System Design
the Board's Financial Statements (year ending 12/31/93)
the FFIEC's Financial Statements (year ending 12/31/93)
the Division of Research and Statistics' Distributed Processing

Audit of the Board's Mainframe Computer Data Communications
Audit of the Board's Currency Program

Number

Month of issue

A9205
A9203-A
A9203-B
A9400
A9401

2/94
2/94
3/94
3/94
3/94

A9306
A9303
A9210

8/94
8/94
9/94

59
Appendix D

Expenses and Employment
at the Federal Reserve Banks
Table DA
Operating Expenses of the Federal Reserve Banks, by District, 1994 and 1995 1
Thousands of dollars, except as noted
1994
estimate

1995
budget

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

99,263
368,162
98,705
100,626
135,097
172,797
198,137
85,040
87,761
116,134
115,909
191,845
1,769,477

Interdistrict Transportation
System (ITS) expenses
Total including ITS

District

Special projects
Currency Authentication Systems
Automation Consolidation
Total
Total
1. Excludes capital outlays.

Change
Amount

Percent

103,610
382,751
100,029
106,849
139,455
178,694
206,423
86,949
91,729
119,658
119,688
198,542
1,834,378

4,346
14,589
1,324
6,223
4,358
5,898
8,286
1,909
3,967
3,524
3,780
6,698
64,901

4.4
4.0
1.3
6.2
3.2
3.4
4.2
2.2
4.5
3.0
3.3
3.5
3.7

35,708
1,805,185

34,940
1,869,317

-768
64,132

3.6

660
61,528
62,188

1,300
37.788
39,088

640
-23,740
-23,101

1,867,373

1,908,405

41,032

2.2

Annual

Report:

Budget Review, 1994 -95

Table D.l
Employment at the Federal Reserve Banks, by District, 1994 and 1995
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

1994
estimate

1995
budget

1,370
4,341
1,376
1,427
2,109
2,453
2,566
1,180
1,288
1,628
1,585
2,511
23,833
4892

FRAS

24,323

Total

Change
Amount

Percent

1,277
4,250
1,287
1,443
2,047
2,392
2,415
1.155
1,323
1,644
1,580
2,428
23,240

-93
-91
-89
16
-62
-61
-151
-25
35
16
-5
-84
-594

-6.8
-2.1
-6.5
1.1
-3.0
-2.5
-5.9
-2.1
2.7
1.0
-.3
-3.3
-2.5

592

103

23,832

-491

-2.0

1. See chapter 3, note 2, for definition of average number of personnel (ANP).
2. Does not include Fednet staff, which are included in Chicago's 1994 estimate.

Table D.3
Expenses of the Federal Reserve Banks, by Operational Area, 1994 and 1995
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

1994
estimate

1995
budget

Change
Amount

Percent

124,373

135,055

10,682

8.6

212,276

221,099

8,823

4.2

1,108,638
359,896

1,118,635
394,529

9,997
34,632

.9
9.6

1,805,185

1,869,317

64,132

3.6

597,850
513,545

644,293
508.303

46,443
-5,241

7.8
-1.0

MEMO1

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 o f the Federal Reserve B a n k s
f o r Salaries o f O f f i c e r s and E m p l o y e e s , b y D i s t r i c t , 1994 a n d 1995
Thousands o f dollars, except as noted

1994
estimate

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

53,793
189,177
47,620
47,446
69,132
79,625
96,951
38,104
43,544
55,750
54,794
102,884

Total

878,821

Change

1995
budget

District

Table

Amount

Percent

53,831
198,984
46,561
49,463
70,201
81,627
95,314
38,962
46,611
57,687
56,952
105,935

38
9,807
-1,059
2,017
1,069
2,002
-1,637
858
3,067
1,937
2,158
3,051

.1
5.2
-2.2
4.3
1.5
2.5
-1.7
2.3
7.0
3.5
3.9
3.0

902,129

23,308

2.7

D.5

Factors i n the 1 9 9 4 - t o - 1 9 9 5 C h a n g e i n Salaries
o f O f f i c e r s a n d E m p l o y e e s o f the Federal Reserve B a n k s , b y D i s t r i c t
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

5.1
6.8
3.9
3.9
4.1
3.6
3.2
4.1
4.0
4.5
3.5
4.3

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

.9
1.1
.3
.3
1.6
.7
1.2
.8
.6
1.1
.3
.5

-5.4
-1.8
-5.4
2.4
-2.6
-1.1
^t.5
-2.0
3.4
-.7
-.2
-1.8

Total

4.6

-1.9

District

Overtime

Other

Total
change

-.5
-1.1
-.4
-2.1
-1.2
-.4
-1.0
-.5
.0
-1.2
.0
.2

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

.0
.0
.0
.0
-.1
.0
-.2
-.1
-.4
.0
.1
.0

.1
5.2
-2.2
4.3
1.5
2.5
-1.7
2.3
7.0
3.5
3.9
3.0

-.5

-.2

2.7

Change in Turnover
staffing
and lag1

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.

Annual

Report:

Budget

Review,

1994 -95

Table D.6
Capital Outlays of the Federal Reserve Banks, by District, 1994 and 1995
Thousands of dollars, except as noted

District

1994
estimate

1995
budget

15,329
34,302
13,397
24,674
15,695
25,559
34,393
3,681
16,654
10,032
15,326
21,244
230,285

Change

Total, System

8,535
44,824
10,452
54,705
25,173
45,112
28,429
9,679
41,982
13,638
18,744
33,172
334,444

-6,793
10,522
-2,944
30,031
9,478
19,553
-5,964
5,998
25,328
3,606
3,417
11,928
104,159

-44.3
30.7
-22.0
121.7
60.4
76.5
-17.3
163.0
152.1
35.9
22.3
56.1
45.2

44,077

-15,064

-25.5

289,426

FRAS

Percent

59,141

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

Amount

378,521

89,095

30.8

Table D.7
Budget Performance of the Federal Reserve Banks,
Operating Expenses, by District, 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
Currency Authentication Systems
Automation Consolidation
Total
Total
1. Excludes capital outlays.

1994
budget

1994
estimate

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

Change
Amount

Percent

101,905
373,747
100,518
103,896
138,867
178,818
202,719
86,666
88,859
118,317
117,535
193,340
1,805,185

181
1,555
-1,408
-1,195
-2,168
1,164
-612
2,630
1,073
-114
836
-4,980
-3,039

.2
.4
-1.4
-1.1
-1.5
.7
-.3
3.1
1.2
-.1
.7
-2.5
-.2

1,328
66,941
68,269

660
61,504
62,164

-668
-5,437
-6,105

1,876,493

1,867,349

-9,144

-.5

Expenses and Employment

Table D.8
Budget Performance of the Federal Reserve Banks,
Employment, by District, 1994
Average number of personnel, except as noted 1
1994
budget

Change

1994
estimate

1,370
4,306
1,404
1,440
2,110
2,460
2,615
1,187
1,279
1,640
1,582
2,529
23,922

District

Total

1,370
4,341
1,376
1,427
2,109
2,453
2,566
1,180
1,288
1,628
1,585
2,511
23,834

0
35
-28
-13
-2
-7
-48
-7
10
-12
2
-18
-88

.0
.8
-2.0
-.9

0
489
489

0
48
48

24,363

Special projects
Currency Authentication Systems
Automation Consolidation2
Total

Percent

0
441
441

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

Amount

24323

—40

-.3
-1.9
-.6
.8
-.7
.1
-.7
-.4

1. See chapter 3, note 2, for definition of average number of personnel (ANP).
2. For presentation purposes, FRAS staff are included with the Automation Consolidation special project.
* Less than 0.05 percent.

Table D.9
Operating Expenses of the Federal Reserve Banks, by Operational Area, 1990-95 1
Thousands of dollars, except as noted

Year

1990
1991
1992
1993
1994 estimate
1995 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

98,973
106,699
109,954
114,617
124,373
135,055

156,934
169,483
182,307
193,621
212,276
221,099

938,862
980,379
1,020,974
1,076,914
1,108,638
1,118,635

211,884
237,369
276,038
326,334
359,896
394,529

1,406,652
1,493,930
1,589,273
1,711,486
1,805,185
1,869,317

6.4

7.1

13.2

5.9

MEMO

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

3.6

Annual

Report:

Budget Review, 1994 -95

Table D.10
Employment at the Federal Reserve Banks, by Operational Area, 1990-95
Average number of personnel, except as noted1

Year

1990
1991
1992
1993
1994 estimate
1995 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

Support2

Overhead2

Total

773
784
776
751
746
747

1,815
1,872
1,832
1,780
1,771
1,725

9,215
9,045
8,878
8,610
8,349
8,065

2,217
2,343
2,587
2,910
3,080
3,161

4,533
4,629
4,711
4,762
4,668
4,468

4,940
4,924
4,998
5,183
5,219
5,074

23,492
23,594
23,782
23,996
23,834
23,240

-.7

-1.0

-2.6

7.4

-.3

-.2

MEMO

Average annual
change (percent)

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

Maps of the
Federal Reserve System

Annual Report: Budget Review, 1994 -95

The Federal Reserve System

MINNEAPOLIS I

BOSTON

CHICAGO!

•

•
M NEW YORK
PHILADELPHIA

CLEVELAND
KANSAS CITY I

•

ST. LOUIS

RICHMOND

m
ATLANTA

DALLAS

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 1995.

Maps of the Federal Reserve System

NEW YORK

BOSTON

PHILADELPHIA

RICHMOND

CLEVELAND
8-H

Detroit*

•

•/.

'V"
Louisville
• Memphis

Little
Rock

New Orleans
Miami®
ATLANTA

CHICAGO

ST. LOUIS

MINNEAPOLIS

KANSAS CITY

DALLAS

SAN FRANCISCO

FRB1 /1-2000-0295-C

Full text of Annual Report : Budget Review : 1994-1995

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