Full text of Annual Report : Budget Review : 2005

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

ANNUAL REPORT OF THE FEDERAL RESERVE BOARD: BUDGET REVIEW

Board of Governors of the Federal Reserve System
2005

2005

Board of Governors of the Federal Reserve System

2005

April 2005
This publication is available from Publications Fulfillment, MS-127, Board of Governors
of the Federal Reserve System, Washington, DC 20551. It is also available on the Board’s
web site, www.federalreserve.gov.

Contents
Introduction
1 Summary of 2004 income and expenditures
2 Operational areas

The Budgets
7
8
9
9

Chapter 1
FEDERAL RESERVE SYSTEM
2005 System budget initiatives
Trends in expenses and employment
2005 capital budgets

11
11
11
12
12
14
14
15
16
17

Chapter 2
BOARD OF GOVERNORS
Planning issues
Major initiatives
Areas of risk
Operations budget by operational area
Capital budget
Positions
Trends in expenses and employment
Survey expenses
Office of Inspector General

19
20
21
23
24
24

Chapter 3
FEDERAL RESERVE BANKS
2004 budget performance
Factors affecting the 2005 budget
2005 personnel expenses
Risks in the 2005 budget
2005 capital budget

Appendixes
Appendix A
29 FEDERAL RESERVE BUDGET PROCESSES
29 Board of Governors
30 Reserve Banks
Appendix B
31 PRICED SERVICES
31 Annual pricing process

33
33
34
34
35

Appendix C
CURRENCY BUDGET
Printing of Federal Reserve notes
Currency transportation
Counterfeit-deterrence research
Treasury’s Office of Currency Standards

Appendix D
37 EXPENSES AND EMPLOYMENT AT THE BOARD OF GOVERNORS
Appendix E
41 EXPENSES AND EMPLOYMENT AT THE FEDERAL RESERVE BANKS
46 MAPS OF THE FEDERAL RESERVE SYSTEM

Introduction
The Federal Reserve System consists of
the Board of Governors in Washington,
D.C., the twelve Federal Reserve Banks
with their twenty-five Branches distrib
uted throughout the nation, the Federal
Open Market Committee (FOMC), and
three advisory groups—the Federal
Advisory Council, the Consumer Advi
sory Council, and the Thrift Institutions
Advisory Council. The System was cre
ated in 1913 by Congress to establish
a safe and flexible monetary and
banking system. Over the years, 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 Fed
eral Reserve has many, varied responsi
bilities. It acts to ensure that the nation’s
economy grows at a pace 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, financial holding
companies (created under the GrammLeach-Bliley Act, enacted in November
1999), 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 financial consumer protection
laws.
The Federal Reserve System plays a
major role in the nation’s payment mecha
nism. The Reserve Banks distribute cur
rency and coin; process Fedwire, automated clearinghouse, and securities
transfers; and process checks. In addition,
the Federal Reserve Banks serve as the

fiscal agents of the United States and provide a variety of financial services for the
Treasury, other government agencies, and
other fiscal principals. For a fuller dis
cussion of the Federal Reserve’s respon
sibilities, see the Board publication The
Federal Reserve System: Purposes and
Functions.

Summary of 2004 Income and
Expenditures
In carrying out its responsibilities in 2004,
the Federal Reserve System incurred an
estimated $1.6 billion in net operating
expenses. Total spending of an estimated
$2.9 billion was offset by an estimated
$1.3 billion in revenue from priced ser
vices, claims for reimbursements, and
other income.
The major source of Federal Reserve
income is earnings from the portfolio of
U.S. government securities in the System
Open Market Account, estimated at $22.3
billion in 2004. Earnings in excess of
expenses, dividends, and surplus are
transferred to the U.S. Treasury—in 2004
an estimated $18.1 billion. (These earn
ings are treated as receipts in the U.S.
budget accounting system and as antici
pated earnings projected by the Office
of Management and Budget in the U.S.
budget.)
Beginning with the 1998–99 budget,
the Board of Governors has operated on
a two-year budget cycle and a four-year
planning cycle. Given their current busi
ness needs, the Federal Reserve Banks
maintain an annual budget cycle. For
more information on the budget pro
cesses, see appendix A.

Annual Report: Budget Review, 2005

Operational Areas

Supervision and Regulation

In 2004 the Federal Reserve System
accounted for costs using the following
categories—monetary and economic
policy, supervision and regulation of
financial institutions, services to financial
institutions and the public, services to the
U.S. Treasury and other government
agencies, and System policy direction and
oversight.

The Federal Reserve System plays a
major role in the supervision and regula
tion of banks and bank holding compa
nies. The Board of Governors adopts
regulations to carry out statutory direc
tives 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 applica
tions for mergers, acquisitions, and
changes in control from banks and bank
holding companies, and take formal
supervisory actions. In 2004, the Federal
Reserve conducted 581 examinations
of state member banks (some of
them jointly with state agencies) and
491 inspections and 3,340 risk assess
ments of bank holding companies; it acted
on 2,548 international and domestic
applications.
The Board also enforces state member
banks’ and certain foreign banking orga
nizations’ compliance with the federal
laws protecting consumers in their use
of credit and deposit products. Between
July 1, 2003, and June 30, 2004, the Sys
tem conducted 329 consumer compliance
examinations, including 305 covering
state member banks and 24 covering for
eign banking organizations. Additionally,
during the 2004 reporting period, the Sys
tem performed 242 Community Reinvest
ment Act examinations.
The Board’s supervisory responsibili
ties also extend to the foreign operations
of U.S. banks and, under the International
Banking Act, to the U.S. operations of
foreign banks. Beyond these activities, the
Federal Reserve maintains continuous
oversight of the banking industry to
ensure the overall safety and soundness
of the financial system. This broader
responsibility is reflected in the System’s
presence in financial markets, through
open market operations, and in the Fed-

Monetary and Economic Policy
The monetary and economic policy
operational area encompasses Federal
Reserve actions to influence the availabil
ity and cost of money and credit in the
nation’s economy. In 2004, the FOMC
held eight regularly scheduled meetings
and adjusted the federal funds rate five
times.
A vast amount of banking and finan
cial data flows through the Reserve Banks
to the Board, where it is compiled and
made available to the public. The research
staffs at the Board and the Reserve Banks
use these data, along with information
collected by other public and private
institutions, to assess the state of the
economy and the relationships between
the financial markets and economic
activity. Staff members provide background information for the Board of Gov
ernors and for each meeting of the
FOMC by preparing detailed economic
and financial analyses and projections
for the domestic economy and interna
tional markets. The Board and the
FOMC use these analyses and projections
in setting reserve requirements, setting
the discount rate (which affects the cost
of borrowing), and conducting open mar
ket operations. Staff members also conduct longer-run economic studies on
regional, national, and international
issues.

Introduction 3

eral Reserve’s role as lender of last
resort.

Services to Financial Institutions
and the Public
The Federal Reserve System plays a cen
tral role in the nation’s payment systems
by ensuring that enough currency and
coin are in circulation to meet the public’s
demand. The Bureau of Engraving and
Printing prints currency and the U.S. Mint
mints coin that the Reserve Banks dis
tribute to the public through depository
institutions. Reserve Banks also receive
deposits of currency and coin from
depository institutions, identify suspect
currency that they forward to the U.S.
Secret Service, and destroy currency that
is unfit for circulation. In 2004, the
Reserve Banks received approximately
$656.2 billion in currency and $5.4 bil
lion in coin from depository institutions,
distributed approximately $686.4 billion
in currency and $6.4 billion in coin, and
destroyed $90.9 billion in unfit currency.
The Reserve Banks also play a central
role in the nation’s payment systems by
processing paper checks and providing a
variety of electronic services for deposi
tory institutions. In 2004, the Reserve
Banks collected approximately 13.8 bil
lion commercial checks, with a total value
of about $15.1 trillion. The Reserve
Banks’ automated clearinghouse (ACH)
service allows depository institutions to
send or receive credit and debit payment
transactions. ACH payments are typically
used for check payments, such as payroll, dividend, mortgage, and bill pay
ments. In 2004, the Reserve Banks pro
cessed approximately 7.4 billion ACH
transactions, valued at about $15.5 tril
lion. Approximately 12.5 percent of the
transactions were for the federal govern
ment; the rest were for commercial
establishments.
The Reserve Banks’ Fedwire Funds

Service allows depository institutions to
draw on their reserve or clearing balances
at the Reserve Banks and to transfer funds
to other institutions that maintain
accounts at the Reserve Banks. In 2004,
the Reserve Banks processed approxi
mately 125 million Fedwire funds trans
fers, valued at about $470 trillion.
The Reserve Banks’ National Settle
ment Service allows participants in pri
vate clearing arrangements to settle transactions through reserve or clearing
account balances. Approximately 60
local and national private arrangements,
primarily check clearinghouse associa
tions but also other types of arrangements,
use the National Settlement Service. In
2004, the Reserve Banks processed over
434,000 settlement entries for these
arrangements.
The Reserve Banks’ Fedwire Securi
ties Service provides securities services
for the handling of book-entry (computerbased) securities and the collection of
physical interest coupons and miscella
neous items. The service allows partici
pants to electronically transfer to other
participants securities issued by the Trea
sury, federal government agencies, and
other approved entities. In 2004, partici
pants originated approximately 21 million transfers valued at about $322 tril
lion. The noncash collection service,
through which maturing or called munici
pal coupons and bonds are presented
for collection, processed about 211,000
transactions in 2004. In February 2005,
the Board approved a plan to withdraw
from the noncash service by the end of
2005. The Reserve Banks will stop
accepting deposits September 30, 2005,
and withdrawal from this service will be
complete on December 30, 2005.

Services to the U.S. Treasury
and Other Government Agencies
The Reserve Banks provide fiscal agency

Annual Report: Budget Review, 2005

and depository services to the U.S. gov
ernment. Through deposit accounts at
Reserve Banks, the government issues
checks, makes payments, and collects
receipts. The Reserve Banks also process
Fedwire funds transfers and automated
clearinghouse payments and provide the
Treasury with daily statements of account
activity. In 2004, Reserve Banks provided
claims for reimbursement of approxi
mately $368 million to the Treasury, other
government agencies, and other fiscal
principals that are billed to these agen
cies for the full cost of providing these
services; reimbursement was received
or is expected for all of the expenses
incurred.
Reserve Banks provide the Department
of the Treasury with services related to
the federal debt. For example, Reserve
Banks issue, service, and redeem marketable Treasury securities and savings
bonds; they also process secondarymarket Fedwire securities transfers initi
ated by depository institutions. In 2004,
the Reserve Banks processed nearly
48,000 competitive and noncompetitive
bids for Treasury securities and printed
and mailed more than 36 million savings
bonds. The Reserve Banks operate two
book-entry (computer-based) securities
systems for the custody of Treasury
securities—the Fedwire book-entry secu
rities system and TreasuryDirect. Almost
all book-entry Treasury securities are
maintained on Fedwire, which is also the
nation’s principal securities transfer
mechanism; the remainder are maintained
on TreasuryDirect, which is used prima
rily by individuals.
Reserve Banks collect and disburse
funds on behalf of the federal govern
ment. The Reserve Banks maintain the
Treasury’s funds account, accept depos
its, pay checks drawn on the Treasury’s
account, and make Fedwire and automated clearinghouse payments on behalf
of the Treasury. In 2004, the Reserve

Banks continued to assist Treasury in its
efforts to increase the use of electronic
payment vehicles. For example, the
Reserve Banks operate the Pay.gov
Internet portal, which permits the public
to pay Treasury and agencies through the
Internet.
The Reserve Banks also invest excess
Treasury balances with more than 1,100
depository institutions, which pay inter
est to Treasury for the use of the funds.
In 2004, the Reserve Banks invested
$1.4 trillion of Treasury balances through
the program. Some of these funds are
callable on demand and pay interest equal
to the federal funds rate less 25 basis
points. The Reserve Banks also place
Treasury funds with depository institu
tions for a set term, with the interest rate
set at auction.
The Reserve Banks also provide fiscal
agency and depository services to other
domestic and international entities.
Depending on the authority under which
the services are provided, the Reserve
Banks may maintain book-entry accounts
of securities, provide custody for the
stock of unissued, definitive (physical)
securities, maintain and update balances
of outstanding book-entry and definitive
securities for issuers, and maintain related
funds accounts.

System Policy Direction
and Oversight
This operational area encompasses activi
ties by the Board of Governors in supervising Board and Reserve Bank programs. At the System level, the expenses
for these activities are considered overhead and are therefore allocated across
the other operational areas. At the Board
level, these expenses are not treated as
overhead nor allocated to other opera
tional areas.
�

The Budgets

Chapter 1

Federal Reserve System
For 2005, total operating expenses are
budgeted at $2,933.8 million, an increase
of 2.7 percent from estimated 2004
expenses. Of this total, $2,663.1 million
is for the Reserve Banks, and $270.7 million is for the Board of Governors (tables
1.1 and 1.2).1 Revenue from priced ser
vices provided to depository institutions
is expected to total $901.7 million, or
30.7 percent of total budgeted operating
expenses. This revenue, combined with
claims for reimbursement and other
income, results in projected net operat
ing expenses of $1,606.2 million.2

1. The Board of Governors budgets on a twoyear cycle; in this chapter, 2005 values shown for
the System and the Board reflect the estimated sec
ond-year effect of the Board’s 2004–05 budget.
2. Claims for reimbursement refers to costs
of fiscal agency and depository services provided
to the U.S. Treasury, other government agencies,
and other fiscal principals that are billed to these
agencies. Other income comes from services pro
vided on behalf of the U.S. Treasury that are paid

The System expects to recover 45.2
percent of its budgeted 2005 operating
expenses through revenue from priced
services, other income, and claims for
reimbursement. When these items are
deducted from budgeted 2005 operating
expenses, the net expenses of the System
show an increase of 3.1 percent from
estimated 2004 net operating expenses
(table 1.1).
Not included in the budget for opera
tions is the cost of currency, budgeted at
$532.9 million for 2005, an increase of
4.1 percent from the 2004 estimated cost
of $512.1 million.3 The distribution of
expenses is similar to that in previous
for by the depository institutions using the services,
which include the transfer of funds between
depository institutions and the Treasury.
3. The Federal Reserve pays for the printing
of new currency at the Bureau of Engraving and
Printing. This cost is not included in the Federal
Reserve operating expenses. For more information,
see appendix C, “Currency Budget.”

Table 1.1
Operating Expenses of the Federal Reserve System, Net of Receipts and Claims for
Reimbursement, 2002–04
Millions of dollars, except as noted
Percent change

2003
(actual)

2004
(estimated)

2005
(budgeted)

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

2,865.3

2,856.8

2,933.8

–0.3

2.7

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

881.7
0.8
327.5

913.6
1.0
384.9

901.7
1.0
424.9

3.6
25.0
17.5

–1.3
0.0
10.4

EQUALS
Net System operating expenses ............

1,655.3

1,557.3

1,606.2

–5.9

3.1

Item

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

2003–04

2004–05

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

Annual Report: Budget Review, 2005

Table 1.2
Expenses of the Federal Reserve System for Operations and Currency, 2003–05
Millions of dollars, except as noted
Percent change

2003
(actual)

2004
(estimated)

2005
(budgeted)

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

2,602.5
1,679.1
941.4

2,581.1
1,611.2
914.9

2,663.1
1,719.8
943.3

–1.5
–0.8
–2.8

3.2
3.2
3.1

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

244.8
182.9
61.9

275.7
197.5
78.2

270.7
199.1
71.6

12.6
8.0
26.4

–1.8
0.8
–8.5

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

2,865.3
1,862.0
1,003.3

2,856.8
1,863.7
993.1

2,933.8
1,918.9
1,014.9

–0.3
0.1
–1.0

2.7
3.0
2.2

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

514.0

512.0

533.0

–0.4

4.1

Item

2003–04

2004–05

NOTE. Components may not sum to totals and may not
yield percentages shown because of rounding.
Operating expenses include costs for special projects
and exclude capital outlays.
1. For detailed information on Reserve Bank expenses,
see chapter 3.

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

years, with the Reserve Banks’ expenses
accounting for 77 percent of the total,
currency expenses accounting for 15 percent, and Board expenses accounting for
the remainder (chart 1.1).
System employment is budgeted at
21,822 for 2005, a decrease of 1,160 from
the estimated 2004 level, largely because
of planned staff reductions by the Reserve
Banks, primarily in the check and support areas.

2005 System Budget Initiatives

Chart 1.1
Distribution of Expenses of the Federal
Reserve System, 2005
Currency, 15.4%

Board of
Governors, 7.8%

Reserve Banks, 76.8%

In response to the continuing decline in
check volume, the Reserve Banks have
again established aggressive spending
targets for their 2005 budgets. This spend
ing restraint reflects the Banks’ efforts to
reduce direct operating costs of the check
service, as well as Bank support and overhead costs, in keeping with a business and
operational strategy to meet the System’s
long-term financial and payment system
objectives. The strategy focuses on reduc
ing check-service operating costs by
streamlining management and administra
tive structures, decreasing the number of
check-processing locations, and increas
ing processing capacity at some locations.
The Banks’ 2005 budget plans also fund
other high-priority payment system
objectives, such as consolidations in
Reserve Bank marketing and customer
support and in Treasury’s retail securities
operations. The major factors affecting
the 2005 Reserve Bank budgets are outlined in more detail in chapter 3.

Federal Reserve System

Trends in Expenses and
Employment
From actual 1996 levels to budgeted 2005
amounts, the operating expenses of the
Federal Reserve System have increased
an average of 3.5 percent per year (1.8
percent per year when adjusted for infla
tion) (chart 1.2). Over the same period,
nondefense discretionary spending by the
federal government has increased an
annual average of 6.4 percent (chart
1.3). Over the 1996–2005 period, Fed
eral Reserve System employment has
decreased 3,399 (chart 1.4).
As mentioned above and detailed in
chapter 3, the primary factors in Reserve
Bank spending restraint and in the sub
stantial staffing decreases are restructur
ing efforts in the check-processing func
tion and efficiency measures in support
and overhead functions. Over the same
ten-year period, check costs increased by
2.6 percent and staffing levels declined
by 1.6 percent. Support and overhead
costs decreased by 0.9 percent and staff
ing levels declined by 4.4 percent.

2005 Capital Budgets
The capital budget for the Reserve Banks
and the Board totals $463.9 million;
$430.5 million budgeted for Reserve

Chart 1.3
Cumulative Change in Federal Reserve
System Expenses and Federal Government
Expenses, 1996–2005
Includes special projects
Percent

Federal government

60
40

Federal Reserve

1996

1998

2000

2002

2004

NOTE. Federal government expenses are discretionary
spending less expenditures on defense.
For 2004, estimated; for 2005, budgeted.

Banks and Federal Reserve Information
Technology (FRIT) and $33.4 million
budgeted for the Board. As in previous
years, the 2005 capital budgets include
funding for projects that support the stra
tegic direction outlined by the individual
Reserve Banks, System business leaders,
and the Board. These strategic goals
focus on investments that improve opera
tional efficiencies and services to Bank
customers and on providing a safe, qual
ity work environment. More detailed dis
cussions of the Board and Reserve Bank
capital budgets are included in chapters
2 and 3, respectively.
�

Chart 1.4
Employment in the
Federal Reserve System, 1996–2005

Chart 1.2
Operating Expenses of the
Federal Reserve System, 1996–2005

Includes special projects

Billions of dollars
Thousands of persons

3
Current dollars

26
2.8

2000 dollars 1

1996

1998

2000

2002

2004

NOTE. For 2004, estimated; for 2005, budgeted.
1. Calculated with the GDP price deflator.

2.4

1996

1998

2000

2002

2004

NOTE. For 2004, estimated; for 2005, budgeted.

Chapter 2

Board of Governors
Every two years, the Board and its senior
staff undertake a process that produces a
four-year strategic plan and a biennial
budget. For the 2004–07 planning period
and the 2004–05 budget period, the Com
mittee on Board Affairs, assisted by a
senior-level Staff Planning Group (SPG)
and staff in the Planning and Budget Sec
tion of the Management Division, guided
the process. During 2004, the first year
of the current budget period, a number of
minor reallocations were made within the
2004–05 approved operations budget.
The operations budget was also decreased
$0.8 million in accordance with the
Board’s policy on software capitalization.
An additional $4.28 million was added
to the capital budget for enhanced Board
perimeter security and for the software
capitalization.
The revised 2004–05 budget for the
Board consists of $527.8 million for
operations, $10.0 million for extraordi
nary items (projects of a unique nature),
and $8.5 million for the Office of Inspec
tor General (OIG). The Board has autho
rized 1,948 staff positions and 31 posi
tions for the OIG; no positions are
required for the extraordinary items.

Planning Issues
The Staff Planning Group reviewed the
planning materials submitted by the
Board’s divisions and offices and identi
fied the following major issues that will
have Boardwide impact over the planning
period:
• strategic human resource issues,
including support for efforts to attract
and retain highly qualified staff
• information technology initiatives that
provide the public with improved

access to Board data and information
• legislation and support for initiatives,
such as Basel II
• physical and information security
and continuity of operations
• investments in facilities
These issues are reflected in the
resource-allocation decisions of the Com
mittee on Board Affairs that are the basis
of the approved budget. They will also
serve as the basis for the 2004–05 per
formance plan prepared as part of the
Board’s voluntary compliance with the
Government Performance and Results
Act.

Major Initiatives
To address these major planning issues,
the approved budget includes the follow
ing initiatives and projects for the 2004–
05 period.
• Attract and retain staff. Initiatives to
improve the Board’s ability to attract
and retain staff include the variablepay program for economists, attorneys,
and officers; a 4.1 percent merit
increase for 2004 and a 3.8 percent
merit increase for 2005; and actions
to enhance productivity and meet new
requirements, such as acquiring
improved information technology
equipment, providing access to
enhanced data sets, and slightly
increasing staff to assist with current
analysis.
• Information technology (IT). Funding
is provided for the Board to comply
with e-government initiatives such as
improved public access to data,
enhanced information security, and
section 508 compliance.

Annual Report: Budget Review, 2005

• Workload. A small increase in the num
ber of positions, a reallocation of
positions to meet higher-priority
requirements, and the filling of a num
ber of vacant positions are necessary
to comply with new laws that affect
Board operations, such as the Federal
Information Security Management
Act; to fulfill expanded supervisory
responsibilities under the SarbanesOxley Act; and to prepare for Basel II
and other key initiatives.
• Security and continuity of operations.
Funding to hire and train armed secu
rity staff authorized during the 2002–
03 biennium, and other actions to
enhance employee safety and the
Board’s ability to operate in a contin
gency environment, added signifi
cantly to the budget.
• Facilities. In line with the Board’s stra
tegic plan, capital investments are
planned for the three Board facilities,
as discussed below in the section on
the capital budget. Additional noncapital improvements are also planned
at all three facilities.

Areas of Risk
Despite a careful and coordinated plan
ning effort, future developments such as
the following could require resources
beyond what is currently approved:
• significant changes in or shocks to
the economy or the financial system
that create a material increase in
workload
• terrorist activity requiring addi
tional security and contingency
enhancements
• a decision to fund a major Systemwide
supervisory technology initiative such
as the Shared National Credit Program
• increased workload created by laws or
decisions to expand or modify central
bank operations

• changes to the position-vacancy-rate
assumptions used in developing the
salary budget and a need for more
office space if the staff increases

Operations Budget by
Operational Area
The Board’s operations budget supports
four broadly defined operational areas:
monetary and economic policy, supervi
sion and regulation, services to financial
institutions and the public, and Federal
Reserve System policy direction and
oversight (tables 2.1 and 2.2). The fol
lowing is a summary discussion of
the resources, including support and
overhead, budgeted for each area for
2004–05.

Monetary and Economic Policy
The revised 2004–05 budget for the mon
etary and economic policy function is
$211.1 million, an increase of $21.0 million, or an average of 5.4 percent per year.
Activities in this operational area include
the Board’s monitoring and analysis of
developments in the money and credit
markets, the setting of reserve require
ments, the approval of changes in the dis
count rate, and other activities related to
managing the nation’s monetary policy.
Besides the additional funding for com
pensation initiatives, increases in this area
will cover the acquisition of additional
data to assist staff. These data relate to
credit risk, retail banking fees and ser
vices, global financial markets, and con
sumer credit.

Supervision and Regulation
The revised 2004–05 budget for the
supervision and regulation function is
$220.4 million, an increase of $25.1 million, or an average of 6.2 percent per year.

Board of Governors

Table 2.1
Expenses of the Board of Governors for Operational Areas, Extraordinary Items, and
Office of Inspector General, 2002–05
Thousands of dollars, except as noted
Average annual
percent change
Operational area,
extraordinary items, or
Office of Inspector General

2002–03
2004–05
actuals
revised budget
compared with compared with
2002–03
2002–03
budgeted
actuals

2002–03
(budgeted)

2002–03
(actuals)

2004–05
(revised budget)

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

190,057
195,354

189,683
189,789

211,072
220,415

–0.1
–1.4

5.4
6.2

9,045

8,929

10,397

–0.6

7.2

77,696

76,784

85,925

–0.6

5.2

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

472,152

465,185

527,809

–0.7

5.7

Extraordinary items .....................
Office of Inspector General ........

1,500
7,757

1,907
7,286

10,000
8,533

12.8
–3.1

158.2
4.9

NOTE. Operating expenses reflect all redistributions for
support and allocations for overhead, and they exclude

capital outlays. Components may not sum to totals and
may not yield percentages shown because of rounding.

Table 2.2
Positions Authorized at the Board of Governors, for Operational Areas,
Support and Overhead, and Office of Inspector General, 2002–05
Average annual
percent change
Operational area,
extraordinary items, or
Office of Inspector General

2002–03
(budgeted)

2002–03
(actuals)

2004–05
(revised budget)

2002–03
2004–05
actuals
revised budget
compared with compared with
2002–03
2002–03
budgeted
actuals

433
381

460
432

433
399

3.1
6.5

–3.0
–3.9

36.5

–21.9

163

161

170

–0.6

2.8

Support and overhead1 ................

691

678

894

–0.9

14.8

Subtotal ...................................

1,690

1,772

1,921

2.4

4.1

Reimbursable IRM support2 .......

3.9

0.0

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

1,715

1,799

1,948

2.4

4.1

Extraordinary items .....................
Office of Inspector General ........

...
29

...
31

...
3.4

...
0.0

1. Includes seventeen youth positions, ten worker
trainee positions, and four summer intern positions.
2. Positions in the Division of Information Technology that provide support to the Federal Financial Institu-

tions Examination Council for processing data collected
under the Home Mortgage Disclosure Act and the Community Reinvestment Act.

Annual Report: Budget Review, 2005

Activities in this area include working
with other federal and state financial
authorities to ensure safety and soundness
in the operation of financial institutions,
stability in the financial markets, devel
opment of guidance related to regulatory
capital and risk management, and fair and
equitable treatment of consumers in their
financial transactions. The 2004–05 bud
getary increases will enhance supervisory
activities such as monitoring, inspecting,
and examining banking organizations to
assess their condition and their compli
ance with relevant laws and regulations
as well as the development of supervi
sory guidance that addresses an increas
ingly complex financial environment and
risk-management techniques. Program
matic increases include funding for
positions added in late 2003, greater
focus on money-laundering activities,
the development of a revised interna
tional capital accord, international train
ing and assistance to foreign govern
ments, and a review of regulations and
policies related to consumer protection.
As risk-management processes and finan
cial transactions become increasingly
complex, staff will need to spend
more time on complex bank examina
tions, monitoring new risk-management
practices and ensuring that proper
controls are in place at all financial
institutions that are supervised by the
Federal Reserve.

System Policy Direction and
Oversight

Services to Financial Institutions
and the Public

Positions

The revised 2004–05 budget for oversight
of Reserve Bank services to financial
institutions and the public is $10.4 million, an increase of $1.3 million, or an
average of 7.2 percent per year. This
increase, aside from compensation and
security initiatives, is primarily due to
the development of the Cash Statistical
Data System.

The revised 2004–05 budget for System
policy direction and oversight is $85.9
million, an increase of $8.2 million, or
an average increase of 5.2 percent per
year. Aside from compensation initiatives,
this increase is due to the continued
focus on security and contingency
planning.

Capital Budget
The Board’s revised 2004–05 capital budget is $33.4 million. Of this total, $20.0
million is for continued security enhance
ments and major building projects.
Major facility projects include perimeter
security enhancements, a fire sprinkler
system, design for a Martin Building
renovation, building security and office
reconfigurations, and a new access con
trol system to improve monitoring of
individuals as they enter Board facilities.
Information technology projects,
including server replacements, network
infrastructure, and data security enhance
ments, will cost $4.6 million. Another
$6.8 million is for nonautomation projects
such as enhancements to the Board’s web
site and a new telephone system. The
remaining $2.0 million is for a new mainframe, software, furniture, and other mis
cellaneous items.

For the revised 2004–05 budget period,
staffing requests resulted in a net increase
of 58 positions in the Board’s position
authorization, bringing the total to 1,948
positions (see appendix D, table D.2).
Fifteen positions were added for more
advanced and quantitative approaches to
risk management and measurement; Basel
II Accord development and implementa
tion; corporate governance, internal con-

Board of Governors

trol, accounting, and disclosure enhance
ments; the anti-money-laundering program; policy issues; and continuity of
bank operations. A net of seven positions
were created to monitor systemically
important nondepository institutions,
oversee operation of the discount window
across the System, and conduct research
on financial stability and the role of a
central bank at times of market stress.
Fifteen positions were added to elimi
nate the need for a like number of longterm dual-occupied positions. Eleven
positions were added as a result of reor
ganizations to improve effectiveness and
efficiency of operations.

Trends in Expenses and
Employment
The rate of increase within the 2004–05
budget is 6.5 percent per year, which is
more than the 6.3 percent projected
average annual rate of increase since the
1994–95 biennium (chart 2.1). The
increase since the 1994–95 biennium is
mainly attributable to strategic humancapital initiatives and the increasing com
plexity of Board work over this period.
This increased complexity required a net
increase in positions and higher average
grades, higher salaries, and increasingly

Chart 2.2
Expenses for Personnel Services at the
Board of Governors, 1994–2005
Millions of dollars

200
Current dollars

175
150

1996 dollars

1995

1998

2001

125

2004

sophisticated automation systems to manage ever-increasing volumes of data.
More recently, the Board has experienced
sharply higher security and contingency
costs.
Approximately three-fourths of the
Board’s operating expenses are for per
sonnel (chart 2.2); consequently, analy
sis of trends is heavily tied to staffing lev
els. From 1994 to 2005, the number of
authorized positions for Board operations
rose from 1,644 to 1,948, a net increase
of 304, or 18.5 percent (chart 2.3).
Chart 2.3
Employment and Authorized Positions at
the Board of Governors, 1994–2005
Thousands

Chart 2.1
Operating Expenses of the
Board of Governors, 1994–2005

1.9
Authorized positions

1.8
1.7

Millions of dollars

Employment
260

1.6

Current dollars
220
180
1996 dollars

1995

1998

2001

140

2004

1995

1998

2001

2004

NOTE . Year-end data. Excludes summer intern and
youth positions as well as positions for the Office of
Inspector General. These positions number 62 for 2004
and 2005. Includes positions that provide support to the
Federal Financial Institutions Examination Council for pro
cessing data collected under the Home Mortgage Disclo
sure Act and the Community Reinvestment Act.

Annual Report: Budget Review, 2005

Reflecting the growing complexity of the
Board’s work, the average grade for pro
fessional staff rose from 25 to 26.
During the ten-year period, changes in
banking, many associated with operations
risk, increased the complexity of super
visory safety-and-soundness activities. To
adequately perform these activities, and
to increase attention to consumer issues,
including collection and analysis of data
for the Home Mortgage Disclosure Act
and Community Reinvestment Act, a net
of thirty-four positions were added.
(Many positions associated with lowerpriority work were eliminated to offset
part of the cost of the new work.) The
increasing complexity of monetary policy
issues resulted in an increase of thirtythree positions.
There has been substantial change in
the overall Reserve Bank environment,
including numerous operational consoli
dations and related changes to the gover
nance process. As a result of these
changes, as well as the need to track pri
vate-sector clearing and settlement orga
nizations, twenty-seven positions were
added.
As have other government entities,
the Board has significantly increased
security in the past several years. Over
half of the net increase in positions was
attributable to safeguarding the premises
and ensuring the safety of personnel.
Finally, a net decrease of five admin
istrative and support positions resulted
from the Board’s efforts to outsource
where feasible. Without these efforts, the
number of administrative and support
positions would have increased because
of enhanced security and the purchase of
an office building to replace leased space.
While the number of positions at the
Board has fluctuated during the 1994–05
period, the salary budget (not including
retirement and insurance benefits) has
remained relatively constant at roughly
63 percent of operating expenses. The
portion of operating expenses devoted to
retirement and insurance has increased

Chart 2.4
Operating Expenses of the
Board of Governors, 1994–2005
Millions of dollars

70
Current dollars

60
50

1996 dollars

1995

1998

2001

40
2004

approximately 1 percentage point over the
period as a result of administrative
actions to enhance benefits such as the
Thrift Plan and because of significant rate
increases for health insurance.
Over the 1994–05 period, the average
annual increase in expenses for goods and
services has been 6.4 percent (chart 2.4).
The largest increase was in contractual
professional services. This growth
resulted primarily from four factors:
(1) increased use of contracting services
in the divisions of Information Technol
ogy, Management, and Banking Supervi
sion and Regulation; (2) significant
increases in the amount and cost of data
acquired from third parties; (3) procure
ment of outside legal services, and
(4) design work for major construction
tied to security. Partially offsetting the
overall increase is a significant decrease
in rental costs due to the purchase of the
New York Avenue building.

Survey Expenses
The Board’s extraordinary items budget
for 2004–05 provides funds of $10.0 million for the Survey of Small Business
Finances ($3.3 million) and the Survey
of Consumer Finances ($6.7 million).
These surveys, which gather information
on the economic behavior of U.S. households and the financial health of U.S.
firms, will improve the quality of eco-

Board of Governors

nomic analysis produced by the Board. A
summary article on the Survey of Con
sumer Finances is expected to be pub
lished in the January 2006 Federal
Reserve Bulletin, and a version of the sur
vey data will be released to the public
shortly thereafter.

OIG’s budget is prepared in a manner that
is consistent with the preparation of the
Board’s operating budget. In conform
ance with the statutory independence of
the office, the OIG presents its budget
directly to the Chairman of the Board of
Governors for consideration by the
Board.
�

Office of Inspector General
The 2004–05 budget of $8.5 million for
the Office of Inspector General (OIG) is
separate from the Board’s budget. The

Chapter 3

Federal Reserve Banks
The 2005 operating budgets of the twelve
Reserve Banks total $2,663.1 million.1
The 2005 total is $82.0 million, or 3.2
percent, above estimated 2004 expenses,
largely because of a one-time curtailment
gain in 2004 (table 3.1). In 2004, the
Reserve Banks adopted a change in eli
gibility criteria for post-retirement medi
cal benefits. In accordance with gener
ally accepted accounting principles (FAS
106), a one-time curtailment gain associ
ated with this change will be realized in
2004, totaling approximately $85 million.
When the one-time gain is excluded
from the 2004 estimate, 2005 budgeted
expenses are $3.2 million lower than the
2004 estimate. To reflect the 2005 change
1. These expenses, which are chargeable to the
Reserve Banks, include those budgeted by Fed
eral Reserve Information Technology (FRIT) and
the System’s Office of Employee Benefits (OEB).

in ongoing operating expenses more
accurately, data presented in this chapter
approximate the expense effect of vari
ous initiatives, excluding the effect of this
significant one-time event.
The 2005 budget reflects the effect of
initiatives to manage cost growth aggres
sively through operational efficiencies,
including additional restructuring and
consolidation efforts. These efforts are
driven, in large part, by the need to
reduce check costs commensurate with
declining revenue. Banks have signifi
cantly reduced costs in the support func
tions in an effort to align these functions
with a shrinking demand for their ser
vices. In 2005, further check restruc
turing is planned, along with consoli
dations in Reserve Bank customer
support and marketing functions and in
Treasury’s retail securities operations
(TreasuryDirect and savings bonds).

Table 3.1
Expenses of the Federal Reserve Banks, Net of Receipts and Claims for Reimbursement,
2004 and 2005
Millions of dollars except as noted
Change

2004
(estimated)

2005
(budgeted)

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

2,581.1

2,663.1

82.0

3.2

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

913.6
1.0
384.9

901.7
1.0
424.9

–11.9
0.0
40.0

–1.3
0.0
10.4

EQUALS
Net expenses ..................................................................

1,281.6

1,335.5

53.9

4.2

Item

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

Amount

Percent

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

Annual Report: Budget Review, 2005

Approximately 50 percent of Reserve
Bank expenses in the 2005 budget are
offset by priced-service revenues (34 percent) and claims for services provided to
the Treasury, other government agencies,
and other fiscal principals that are billed
to these agencies (16 percent). Budgeted
2005 revenue is lower than the 2004
estimated level, primarily as a result of
declining check volume, offset slightly
by higher imputed net income on clear
ing balances and electronic-connection
revenue. Reimbursable claims will
increase 10.4 percent in 2005, reflecting
additional efforts by the Reserve Banks
on behalf of the Treasury.
Total 2005 projected average number
of personnel (ANP) for the Reserve
Banks, FRIT, and OEB is 19,967, a
decrease of 1,193, or 5.6 percent, from
2004 estimated staff levels (table 3.2).2
The 2005 staffing decrease continues the
trend of workforce reductions that began
in 1999 and is the lowest staffing level
since the early 1970s. The 2005 budget
reduction reflects Treasury and check-

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

restructuring efforts, initiatives to
increase productivity and efficiency in
support and overheard areas, and the fullyear effect of early retirement programs
offered by most Banks in 2004.

2004 Budget Performance
Total 2004 expenses are estimated to be
$2,581.1 million, which represents a
decrease of $85.3 million, or 3.2 percent,
from the approved 2004 budget. The
Banks, FRIT, and OEB estimate 2004
ANP at 21,160, a decrease of 140 from
budgeted 2004 levels. The expense
underrun is due mainly to the $85.2 million curtailment gain associated with
accounting for post-retirement medical
benefits discussed above. Reductions in
check and cash operations and many support areas also contribute to the
decrease. Partially offsetting these sav
ings are increased costs related to addi
tional requests for services by the
Treasury.
Estimated 2004 check costs decreased
by approximately 3 percent and staffing
levels decreased by 78 ANP compared
with the 2004 budget as Reserve Banks
trimmed staff in response to further
volume declines and increased efficien
cies. Partially offsetting the decrease

Table 3.2
Employment at the Federal Reserve Banks, FRIT, and OEB, 2004 and 2005
Average number of personnel except as noted
Change

2004
(estimated)

2005
(budgeted)

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

20,365
758
38

19,168
759
40

–1,197
1
2

–5.9
0.1
5.3

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

21,160

19,967

–1,193

–5.6

Item

NOTE. Components may not sum to totals and may not
yield percentages shown because of rounding. See text
note 2 for definition of average number of personnel.

Amount

Percent

Federal Reserve Banks

are severance costs included in the esti
mate related to a midyear decision to
undertake a second phase of check
restructuring.
Expenses in cash remained flat com
pared with the original budget. Spending
restraint in the cash area has been facili
tated by productivity improvements,
resulting in a decrease of 52 ANP. In
addition, depreciation costs are lower
because of a decision to extend the use
ful life of currency-processing machines.
Offsetting these reductions somewhat is
an increase in the Standard Cash Auto
mation (SCA) project, a standard software platform that Reserve Banks use to
manage their cash operations.
Estimated 2004 support costs were
approximately 1 percent lower than budget as Banks continue to reduce support
levels. Staffing levels declined by 112
ANP from budgeted levels, largely as a
result of efforts to streamline the business
development (36 ANP), information tech
nology (12 ANP), and facilities (37 ANP)
functions.
Expenses associated with the Treasury
Web Applications Infrastructure (TWAI)
project were $16.0 million higher than the
approved 2004 budget. TWAI provides a
multi-tiered web environment that bal
ances the business need for a secure
access system with the need to provide
public access to Treasury applications.
The increase was due primarily to the
expansion of the TWAI project, which
had not been budgeted, and revisions
to the contract with the vendor support
ing TWAI. These changes were all
made at Treasury’s request and are fully
reimbursable.
After the 2004 budgets were submit
ted to the Board for approval, the
Bureau of Public Debt announced that
Treasury retail securities, which include
TreasuryDirect and savings bonds opera
tions, will be further consolidated, from
seven offices into two. This consolidation
is expected to be completed by late 2005.
The 2004 estimate includes $5.6 million

for an additional 82 ANP hired at the con
solidated sites in preparation for the ad
ditional volume. The estimate also in
cludes $5.2 million in severance costs for
staff at the nonconsolidated sites who will
be displaced in 2005.
Estimated costs in the monetary and
economic policy and the supervision and
regulation areas were near 2004 budgeted
levels. Monetary and economic policy
costs increased slightly from the budget
(about 1 percent), and supervision and
regulation costs are estimated to be about
1 percent lower than the budget (because
of positions budgeted but not filled).

Factors Affecting the 2005 Budget
For 2005, the Reserve Banks’ budgets
reflect continued focus on several costreduction efforts currently under way. As
previously mentioned, these efforts are
largely a response to shortfalls in checkcost recovery over the last several years.
The Bank budgets reflect efforts to
streamline operations through increased
efficiencies, including downsizing support operations in response to staff reduc
tions. Decisions by the Treasury will
result in further consolidation of its retail
securities operations and continued
expansion of TWAI. The 2005 budget
also reflects funding and staffing to support an increased focus on community
outreach and economic and financial lit
eracy programs in many Banks.

Check Service
Over the past five years, the Federal
Reserve’s check-processing operations
have undergone considerable change to
improve efficiency. In 2000, the Banks
launched their check-modernization
effort (composed of the Check Standard
ization, Enterprise Wide Adjustments,
FedImage, and Check Electronic Access
and Delivery projects) to install uniform

Annual Report: Budget Review, 2005

software and hardware for check process
ing, imaging, and adjustments at all Fed
eral Reserve check-processing sites and
to provide web access to check services.
This initiative was completed in 2004. In
2003, the Banks began efforts to reduce
the number of check processing-sites to
better align the Federal Reserve checkprocessing infrastructure with the evolv
ing market environment. By year-end
2004, the Banks had closed 13 checkprocessing sites. A second phase of
restructuring, announced in 2004, will
result in the closure of an additional nine
check operations by early 2006. Checks
from sites eliminating check operations
will be processed at other Reserve Bank
offices. Also in 2004, the Banks made
operational preparations to implement the
authority provided by the Check Clear
ing for the 21st Century Act (Check 21).
Overall, the results of these initiatives
and continued efforts to increase produc
tivity in the check service have resulted
in approximately a 13 percent reduction
in costs and a 712 ANP decline in staff
ing from estimated 2004 levels. The 2005
budget includes the full-year effect of
savings from the completion of the checkmodernization projects and the 2004
check-processing site closures. The
amount of the reduction also reflects
the nonrecurrence of severance costs,
accounted for in the 2004 estimate, asso
ciated with the second phase of restruc
turing. Support costs to the check area are
budgeted to decrease by 38 percent from
the 2004 estimate. This reduction is the
combination of two factors—an overall
reduction in support costs and a lower
percentage of support costs flowing to the
check service commensurate with the
reductions in check operations.

Treasury-Related Functions
Costs for Treasury services continue to
increase, largely as a result of additional
work for TWAI. The $20.0 million

increase in the TWAI project costs bud
geted in 2005 is primarily the full-year
effect of changes made to the vendor contract in 2004 and additional staff and
equipment at FRIT dedicated to this
project. Costs related to the Pay.gov
and Paper Check Conversion (PCC)
e-government projects are budgeted to
increase, largely as a result of an addi
tional 14 ANP to support project techni
cal and operational workloads, as well as
increased software amortization related
to new application enhancements and
consultant fees. Pay.gov allows individu
als and organizations to make payments
to the government for services and fees
using the Internet to initiate ACH transactions. The PCC project involves imag
ing check payments and converting them
to ACH payments.
Consolidation of the Treasury’s retail
securities operations are expected to
yield net savings of $15.8 million and
83 ANP in 2005 as savings bonds and
TreasuryDirect operations are consoli
dated into two offices. The reduction
reflects the full-year effect of the restruc
turing, which began in 2004.

Support Services
Support function costs are budgeted to
decrease by approximately 2.5 percent
and staffing levels by 478 ANP from the
2004 estimate. The decrease is driven
mainly by efforts to reorganize the busi
ness development function, resulting in
reductions of $14 million and 66 ANP.
The initiative, approved early in 2004,
involves national management of the
marketing function, with all marketing
performed by staff reporting to the Cus
tomer Relations and Support Office
(CRSO). Some additional customer support functions will also be managed
nationally, and national product offices
will exercise greater control over the costs
of the remaining customer support func
tions. Reserve Bank sales functions also

Federal Reserve Banks

have been downsized to reflect more tar
geted efforts.
Other support function costcontainment efforts are reflected in the
information technology and human
resources budgets. The 2005 budget
includes a substantial decrease in local
IT costs, primarily as a result of efficien
cies gained from the implementation of
standard desktop hardware and software
and reduced demand as a result of lower
overall Bank staffing levels. These sav
ings are offset by investments at the Sys
tem level to enhance payment systems.
In aggregate, IT costs are increasing about
1 percent over estimated 2004 spending
levels. In 2005, total human resources
administration costs are budgeted to
decrease about 1.5 percent and human
resources staffing is projected to decrease
by 45 ANP from the 2004 estimate,
largely as a result of efficiencies gained
through the consolidations of functions,
such as PeopleSoft and payroll, and
adjustments to staffing levels commen
surate with overall reductions in Reserve
Bank workforces.

Public Programs
Costs for the public programs function,
including community outreach and finan
cial and economic education efforts, are
budgeted to increase by $14.2 million, or
12.0 percent, in the 2005 budget and staff
ing is budgeted to increase by 34 ANP.
Many Banks have noted an increased
need to enhance financial literacy and
economic education and to improve com
munity outreach efforts within their
regions.

2005 Personnel Expenses
Budgeted officer and employee salaries
and other personnel expenses (which
includes variable pay and severance
costs) total $1,338.6 million, which is 2.0

percent below the 2004 estimate. The
budget includes $24.0 million for officer
salary administration and $74.6 million
for employees, reflecting an average merit
increase of 3.6 percent for officers and
3.5 percent for employees, somewhat
higher than the 2004 average merits of
3.4 percent for officers and 3.2 percent
for employees.3
In the 2005 budget, officer variablepay programs total $15.2 million, and
employee variable-pay programs total
$29.8 million. The Reserve Banks have
devoted an increasingly higher percent of
their salary expense to variable pay. This
increase reflects the Reserve Banks’
increased emphasis on pay for perfor
mance over the past several years.
Of the projected 2,381 fewer ANP at
the Reserve Banks, FRIT, and OEB in
2005, an estimated 45 percent will not be
replaced, primarily because of planned
staff reductions associated with check
restructuring, business development, and
Treasury retail securities consolidation.
Turnover is projected to be lower in 2005
than in 2004 in large part because of the
completion of voluntary retirement programs approved in 2003 by the Committee on Employee Benefits for nine
Reserve Banks and FRIT.
Retirement and other benefit expenses
account for 20 percent of personnel ex
penses and 14 percent of 2005 Reserve
Bank budgets. Excluding the effect of the
change in the eligibility criteria for postretirement medical expenses, retirement
and other benefits are anticipated to
increase by approximately $18 million,
or 5 percent, in 2005. Factors driving the
increase include higher health care costs
and group life insurance costs.

3. Salary administration represents the bud
geted funds that are available to increase compen
sation to officers and employees in the upcoming
year. It does not include adjustments for changes
in staffing levels, turnover and lag in hiring, and
overtime.

Annual Report: Budget Review, 2005

Risks in the 2005 Budget
The continued effect of checkrestructuring initiatives, the implementa
tion of Check 21, and projected volume
declines pose continued risk to the check
area in 2005. In addition, changes in the
scope or direction of the various Trea
sury projects and continued unbudgeted
Treasury requests also present risks for
this budget year.
The check service continues to be an
area where Banks have identified a con
siderable amount of budget risk. All
planned restructuring efforts in thirteen
offices were completed in 2004. In
August, the Reserve Banks announced
that another nine sites would discontinue
check processing during 2005 and early
2006. At the same time, the Retail
Payments Office (RPO) is moving
toward national management of check
adjustments, float management, and
product pricing. Delays in the checkrestructuring schedule could result in the
need for higher-than-budgeted staffing,
overtime, and facility costs. In addition,
the budget would be affected by any large
reconcilement issues resulting in
unbudgeted write-offs. Projected check
volume declines of 15 percent are antici
pated because of the continued decline
in the use of paper checks in the United
States, price increases, and the reduction
in the number of check-processing sites.
While the Banks are positioned to react
to shifts in volumes, a significant change
from plan would affect operations. The
RPO also cites as a 2005 risk increased
costs for check transportation, which
would result from higher-than-plannedfor fuel costs and additional changes in
carrier routes related to further checkrestructuring efforts.
As in the past, unforeseen requests
from the Treasury or changes in scope and
direction would add costs and could
require additional resources in 2005;
however, the Reserve Banks are fully
reimbursed for those costs by the Trea

sury. For 2004, Reserve Banks have esti
mated Treasury costs to be about 8.0 percent higher than the original budget,
largely as a result of increased requests
for services.

2005 Capital Plan
The 2005 capital budget submitted by the
Reserve Banks, FRIT, and OEB totals
$430.5 million, a $39.2 million decrease
from 2004 estimated levels. The decrease
from the 2004 estimate is largely due to
the completion of the Houston building,
planned for mid-2005.
As in previous years, the 2005 capital
budget includes funding for projects that
support the strategic direction outlined by
the individual Reserve Bank and System
plans. These strategies focus on invest
ments that improve operational efficien
cies and services to Bank customers and
on providing a safe and quality work
environment. In support of these strate
gies, the 2005 budget identifies five
major categories of capital outlays: build
ing projects and facility improvements,
payment system improvements, automa
tion and communication initiatives, secu
rity enhancements, and miscellaneous
acquisitions.

Building Projects
The proposed capital budget includes
$245.2 million for building-related
projects and facility improvements.
Almost half of this total, $112.5 million,
is related to new building projects in
Detroit, Houston, Kansas City, and
Seattle. The remaining outlays in this cat
egory will fund various building renova
tion and refurbishment projects, as well
as miscellaneous facility improvement
and energy efficiency projects.

Payment System Projects
The budget includes $83.5 million for

Federal Reserve Banks

initiatives related to payment system
improvements. Almost two-thirds of these
funds ($50.5 million) support reimburs
able initiatives for the Treasury, mainly
software for several Treasury projects
across the System.

third, or $24.1 million. Aside from FRIT,
the District budgets include $23.6 million
for equipment, mainly for servers and
telecommunications upgrades, and $14.0
million for various software projects to
support local and System initiatives.

Information Technology Projects

Security Enhancements and
Miscellaneous Items

Banks have included $61.7 million in
funding for major automation and com
munication initiatives. These initiatives
do not include the automation compo
nents of building or payment systems ini
tiatives discussed separately. Of the total
automation-related outlays, FRIT projects
and acquisitions account for over one-

The proposed capital budget includes
$35.4 million for security enhancements
and $4.6 million for miscellaneous capi
tal items. Miscellaneous capital includes
funding for other equipment and software not falling into the other defined
categories.
�

Appendixes

Appendix A

Federal Reserve Budget Processes
This appendix is an overview of the sepa
rate budgets and budgeting processes fol
lowed by the Board of Governors and the
Reserve Banks. The purpose of this overview is to inform the reader of the data,
assumptions, and initiatives considered
when the Federal Reserve System budgets were developed and approved by the
Board of Governors.

Board of Governors
The Board’s budget covers a two-year
period. Toward the end of the first year
of the budget cycle—the even-numbered
year—the strategic plan for the next four
years is updated, and the second year is
used to develop the budget for the next
two years. The two-year cycle begins in
the fall (thus, for the 2006–07 budget, in
the fall of 2004). At that time, the Board’s
divisions examine their operating envi
ronments and consider whether any
adjustments to their mission, priorities,
activities, and associated resources might
improve the efficiency and effectiveness
of the Board’s operations.
The management of each division dis
cusses with the appropriate Board oversight committee the issues that arise in
its review. After any adjustments, the
division gives the results to the Staff Plan
ning Group, a small group of senior man
agers with a Boardwide perspective, for
use in their analysis of the Board’s budget options.
After consulting with the Board-level
Committee on Board Affairs for final
guidance, the Planning and Budget staff
updates the strategic plan, one of several
factors used to prepare a preliminary budget objective that identifies the resources
needed to support the plan. Individual

division budget objectives are prepared
on the basis of Boardwide priorities
and planning assumptions. The Committee on Board Affairs reviews the plan
and preliminary budget objective, clari
fies outstanding planning issues with
the Staff Planning Group and division
directors, and at the end of summer
in odd-numbered years submits the budget objective to the Board for its
consideration.
The divisions use the budget objective
approved by the Board to complete their
budgeting under the approved plan. The
Board’s Committee on Board Affairs,
under authority delegated by the Chairman, oversees the process until the budget is submitted to the Board for action
in the fall of the odd-numbered year. The
budget memorandum is publish on the
Board’s public web site and becomes the
primary source for this report and other
similar documents.
The Board of Governors budgets its
resources by division and accounts for its
activities by division and across opera
tional areas. Direct costs, such as those
for salary, retirement, insurance, and
travel, are billed to the operational areas.
Costs for data processing are also charged
as a direct expense to each of the areas
according to service-level agreements (at
prices derived from the cost of resources
needed to provide the services and agreed
upon before the budget year starts).
Expenses for other elements of support
and overhead are distributed among the
operational areas in proportion to the
share of direct costs attributable to each
area.
The Board, in accordance with gener
ally accepted accounting principles, capi
talizes certain assets and depreciates their
value over appropriate periods instead of

Annual Report: Budget Review, 2005

expensing them in their year of purchase.
Hence, the Board has both an operations
budget and a capital budget.
After the budget is approved by the
Board, it is converted to an operating plan
that allocates funding by month; the
operating plan is also the vehicle for subsequent performance reports and adjust
ments within the budget. In January of
each year, the cash requirement for the
first half of the calendar year is estimated,
and the cash is raised by an assessment
on each of the Reserve Banks in propor
tion to its capital stock and surplus. The
cash requirement for the second half of
each year is estimated in June, and the
second assessment is made in July.
The Board accounts for extraordinary
items separately from the operations budget so that unique, one-time requirements
do not compete with regular operations
and so that expenses in those operations
can be readily compared across years
without distortion. As discussed more
fully in chapter 2, the extraordinary items
budget for 2004–05 consists of funds to
support planning for two periodic sur
veys, one on consumer finances and the
other on small business finances.
The Board’s Office of Inspector Gen
eral (OIG), in keeping with its statutory
independence, prepares its proposed budget apart from the Board’s budget. The
OIG presents its two-year budget directly
to the Chairman for action by the Board,
also in the fall.

Reserve Banks
Each year, the Federal Reserve Banks
establish major operating goals for the
coming year, devise strategies to attain
those goals, estimate required resources,
and monitor results. The process begins
with development of budget guidance by

the business leaders in each functional
area. This information is used to develop
a preliminary budget projection, the
Reserve Bank budget outlook (RBBO).
Each Bank then develops its own budget
using the business-leader guidance. The
budgets are reviewed at the Board by a
committee of governors—the Committee
on Federal Reserve Bank Affairs—both
individually and in the context of
Systemwide issues and the plans of the
other Banks. The budgets are then pre
sented to the full Board of Governors for
final action in December.
The Banks’ budgets are structured in
operational areas, with support and overhead charged to these areas.
As does the Board, the Banks, in
accordance with generally accepted
accounting principles, capitalize certain
assets and depreciate their value over
appropriate periods instead of expensing
them in the year of purchase. Hence, the
Banks have a capital budget in addition
to an operating budget.
The Banks budget annually for capital
outlays by capital class to estimate the
effect of total operating and capital spend
ing. During the budget year, the Banks
must submit proposals for major pur
chases of assets to the Board for further
review and approval.
The operations and financial perfor
mance of the Reserve Banks are moni
tored throughout the year via a costaccounting system, the Planning and Con
trol System (PACS). 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 these areas.
PACS makes it possible to compare budgets with actual expenses and facilitates
comparison of the financial and operat
ing performances of the Reserve Banks.
�

Appendix B

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

Annual Pricing Process
To meet the requirement for the full
recovery of costs over the long term, the
Table B.1
Revenue from Priced Services, 2003–2005
Millions of dollars

Service

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

2004
(estimated)

2005
(bud
geted)

51.1
68.2
737.9

57.9
75.2
758.0

64.2
82.1
732.7

21.8
2.3
0.4

20.8
1.7
0.0

21.4
1.3
0.0

881.7

913.6

901.7

2003

Federal Reserve has developed an annual
pricing process involving projections of
Reserve Bank expenses, volumes, and
revenues, as well as the PSAF and net
income on clearing balances, for each
major service category.
Fees for Federal Reserve services must
be approved by the product director for
the respective service, by the Financial
Services Policy Committee, and ulti
mately by the Board of Governors.1
The cost of float is estimated by
applying the 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 using a model
of the fifty largest U.S. bank holding com
panies. These rates are applied to the
assets the Federal Reserve expects to use
in providing priced services in the com
ing 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); the imputed
assessment for insurance by the Federal
Deposit Insurance Corporation (based on
expected clearing balances and amounts
deferred to depository institutions for
items deposited for collection with the
Reserve Banks); and the portion of the
expenses of the Board of Governors
directly related to providing priced
services.
�

1. The product directors are the first vice presi
dents at selected Reserve Banks with responsibil
ity for day-to-day policy guidance over specific
services. The Financial Services Policy Committee (FSPC) is responsible for the overall direction
of financial services for the Federal Reserve Banks.

Appendix C

Currency Budget
Federal Reserve Banks issue new and fit
currency to the public through depository
institutions and destroy currency already
in circulation as it becomes unfit or when
a new design is issued. Each year, under
authority delegated by the Board, the
director of the Division of Reserve Bank
Operations and Payment Systems orders
new currency from the U.S. Department
of Treasury’s Bureau of Engraving and
Printing (BEP). Upon reviewing the
order, the BEP establishes billing rates
for new currency, which Board staff uses
to prepare the annual budget for new cur
rency. Once the Board approves the new
currency budget, it assesses each Federal
Reserve Bank through an accounting pro
cedure similar to that used in assessing
the Banks for the Board’s operating
expenses.
Estimated currency expenditures for
2004 total $512.1 million, which is $6.3
million, or 1.2 percent, less than budgeted
(table C.1). The underrun is primarily due
to the BEP’s producing fewer notes in the
first quarter of fiscal year 2005 (the last
quarter of calendar year 2004), based on
a print order for fiscal year 2005 that was
lower than staff estimated at the time of
the 2004 budget submission. Budgeted
currency expenditures for 2005 total

Chart C.1
Federal Reserve Budget for New Currency,
1996–2005
Millions of dollars

500
400
300
200
100
1996

1999

2002

2005

NOTE. For 2004, estimated; for 2005, budgeted.

$532.9 million, which is $20.8 million,
or 4.1 percent, more than estimated 2004
expenses (chart C.1). The increase is pri
marily due to an increase in the BEP’s
billing rates, which resulted in higher
costs for printing new currency in 2005.

Printing of Federal Reserve Notes
The Board ordered 8.6 billion new notes
for the calendar year 2005 budget. The
budget for printing the Board’s order is
$510.0 million, or 95.7 percent of the
total 2005 new currency budget. For Janu-

Table C.1
Federal Reserve Budget for New Currency, 2004 and 2005
Thousands of dollars, except as noted
Item

2004
(estimated)

2005
(budgeted)

Percentage
change

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

492,814
13,146
2,796
3,340

509,974
16,050
3,521
3,400

3.5
22.1
25.9
1.8

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

512,096

532,945

4.1

Annual Report: Budget Review, 2005

Table C.2
Projected Federal Reserve Costs of Printing New Notes, by Type of Note, 2005
Cost per
thousand notes
(dollars)

Total cost
(thousands of
dollars)

39.0

40.10

135,065

710.2
908.8
3,644.4

8.2
10.6
42.2

52.90
65.10
76.33
59.04

37,569
59,163
278,177

8,631.6

100.0

Type of currency

Number of
notes (millions)

Unthreaded ($1s) .....................................

3,368.2

New Currency Design
($5S) .....................................................
($10s, $100s) .......................................
Series-2004 ($10s, $20s, $50s) ...............
Average cost .............................................
Total .........................................................

ary through September 2005 (the portion
of the federal government’s 2005 fiscal
year that falls within the 2005 calendar
year), the BEP will produce 6.7 billion
notes; for October through December
2005 (the remainder of the 2005 calen
dar year), it will produce another 1.9 bil
lion notes.
The 2005 billing rates reflect four
types of currency produced: unthreaded
($1s); New Currency Design (NCD)
without color-shifting ink ($5s); NCD
with color-shifting ink ($10s and $100s);
and Series-2004 with new and enhanced
security features, including color-shifting
ink ($10s, $20s, and $50s) (table C.2).1
During 2005, 18.8 percent of the notes
produced will be NCD notes, 42.2 percent will be Series-2004, and the remain
ing 39.0 percent will be unthreaded. The
weighted average price that the Board
will pay the BEP for producing notes in
2005 is $59.04 per thousand.

Percentage of
total notes

509,974

from the BEP to the Reserve Banks and
new and fit currency among the
Reserve Banks. The 2005 currency trans
portation budget is $16.1 million, which
is $2.9 million, or 22.1 percent, more than
the Board estimated for 2004. The 2005
budget for shipments of new currency
from the BEP is $12.5 million, which is
25.0 percent more than estimated 2004
expenses because of a return to historical
pricing levels for ground shipments and
an increase in the cost of fuel for air and
ground shipments. The 2005 budget for
currency shipments among Reserve
Banks is $3.5 million, which is 12.9 percent more than estimated 2004 expenses.
These shipments include moving cur
rency from Reserve Bank offices with
excess fit currency to offices that would
otherwise require new currency from the
BEP.

Counterfeit-Deterrence Research
Currency Transportation
The currency transportation budget con
sists of funds for shipping new currency
1. For NCD notes greater than the $5 denomi
nation, the color of the ink shifts from green to
black as the viewing angle of the note changes.
For Series-2004 notes, the color shifts from copper to green.

The 2005 budget for the counterfeitdeterrence program is $3.5 million. The
funds will support the Federal Reserve
Board’s participation in the Central Bank
Counterfeit Deterrence Group (formerly
known as the SSG-2), which operates
under the auspices of the G-10 central
bank governors to combat digital coun
terfeiting, and membership to the Reprographic Research Center, a state-of-the-

Currency Budget

art adversarial testing facility for testing
bank note designs and counterfeit-deter
rence features.

Treasury’s
Office of Currency Standards
The 2005 budget to reimburse the Trea
sury Department for expenses of its

Office of Currency Standards (OCS) is
$3.4 million. Because destroying unfit
currency is a function delegated from the
Treasury Department to the Reserve
Banks, the OCS develops Reserve Bank
standards for the cancellation, destruc
tion, and accountability of unfit currency
and processes claims for the redemption
of damaged or mutilated currency.
�

Appendix D

Expenses and Employment
at the Board of Governors
Table D.1
Operating Expenses of the Board of Governors, by Division, Office, or Special Account,
2002–2005
Thousands of dollars, except as noted
Average annual
percent change
Division, office, or special account

2002–03
(budgeted)

2002–03
(actuals)

2004–05
(revised
budget)

2004–05
2002–03
revised
actuals
budget
compared with
compared with
2002–03
2002–03
budgeted
actuals

Board Members .....................................
Secretary ................................................
Research and Statistics .........................
International Finance .............................
Monetary Affairs ...................................
Banking Supervision and Regulation ....
Consumer and Community Affairs .......
Legal ......................................................
Reserve Bank Operations
and Payment Systems ...................
Staff Director for Management .............
Information Technology ........................
Management ..........................................
Special projects .....................................
IRM income account1 ............................

20,606
11,513
69,599
26,067
21,730
76,198
22,082
21,725

20,091
11,149
69,966
26,579
21,367
73,767
21,960
21,428

25,188
11,602
75,830
28,548
24,070
84,074
24,478
23,846

–1.3
–1.6
0.3
1.0
–0.8
–1.6
–0.3
–0.7

12.0
2.0
4.1
3.6
6.1
6.8
5.6
5.5

35,663
11,468
83,144
91,790
18,367
(37,799)

35,517
11,605
78,869
97,878
11,584
(36,575)

38,292
16,256
87,817
115,930
10,480
(38,602)

–0.2
0.6
–2.6
3.3
–20.6
–1.6

3.8
18.4
5.5
8.8
–4.9
2.7

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

472,153

465,185

527,809

–0.7

6.5

Extraordinary items ...............................
Office of the Inspector General ............

1,500
7,757

1,907
7,286

10,000
8,533

12.8
–3.1

0.0
8.2

1. Income from various Board divisions for use of
central information resources management (IRM)
resources.

Annual Report: Budget Review, 2005

Table D.2
Positions Authorized at the Board of Governors, by Division, Office, or Special Account,
2002–2005
Division, office, or special account

2002–03
(authorized)

2004–05
(revised budget)

Change

Board Members ........................................................
Secretary ...................................................................
Research and Statistics ............................................
International Finance ................................................
Monetary Affairs ......................................................
Banking Supervision and Regulation .......................
Consumer and Community Affairs ..........................
Legal .........................................................................
Reserve Bank Operations
and Payment Systems ......................................
Staff Director for Management ................................
Information Technology1 ..........................................
Management .............................................................
Concern2 ..........................................................
Special Projects ........................................................

77
53
275
118
68
235
80
80

77
50
277
114
75
251
84
80

...
–3
2
–4
7
16
4
...

138
47
261
397
31
3

138
45
276
422
31
1

...
–2
15
25
...
–2

Subtotal ...............................................................

1,863

1,921

Reimbursable IT support1 ........................................

...

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

1,890

1,948

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

...

1. Positions in the Division of Information Technology that provide support to the Federal Financial Institutions Examination Council for processing data collected
under the Home Mortgage Disclosure Act and the Com
munity Reinvestment Act.

2. Summer intern and youth positions handled by the
Management Division.
. . . Not applicable.

Board Expenses and Employment

Table D.3
Operating Expenses of the Board of Governors, by Account Classification,
2002–2005
Thousands of dollars, except as noted
Average annual
percent change
Account classification

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

2004–05
2002–03
revised
actuals
budget
compared with
compared
with
2002–03
2002–03
budgeted
actuals

2002–03
(budgeted)

2002–03
(actuals)

2004–05
(revised
budget)

294,075
28,822
23,868
346,765

293,082
29,225
23,590
345,897

329,353
30,633
29,004
388,989

–0.2
0.7
–0.6
–0.1

6.0
2.4
10.9
6.0

14,039
1,571
9,731
2,518
2,044
2,756
12,994
7,636
816
2,123
5,587
4,896
5,255

11,724
1,300
9,284
2,209
1,681
2,765
12,600
8,144
758
1,783
5,599
5,479
3,216

13,599
1,176
10,576
2,963
1,381
2,292
14,651
8,838
748
2,005
5,916
5,991
2,578

–8.6
–9.0
–2.3
–6.3
–9.3
0.2
–1.5
3.3
–3.6
–8.4
0.1
5.8
–21.8

7.7
–4.9
6.7
15.8
–9.4
–9.0
7.8
4.2
–0.7
6.0
2.8
4.6
–10.5

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

400
39,557

969
33,569

896
40,331

...
–7.9

–3.9
9.6

3,810
1,739
24,564
(16,648)
125,388

3,156
1,528
23,885
(10,362)
119,288

4,405
1,285
26,544
(7,354)
138,820

–9.0
–6.3
–1.4
–21.1
–2.5

18.1
–8.3
5.4
–15.8
7.9

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

472,153

465,185

527,809

–0.7

6.5

Extraordinary items ...............................
Office of the Inspector General ............

1,500
7,757

1,907
7,286

10,000
8,533

12.8
–3.1

129.0
8.2

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

. . . Not applicable.

Appendix E

Expenses and Employment
at the Federal Reserve Banks
Table E.1
Operating Expenses of the Federal Reserve Banks, by District, 2004 and 2005
Thousands of dollars except as noted
Percent change
District

2004
(budgeted)

2004
(estimated)

2005
(budgeted)

2004 estimated
compared with
2004 budgeted

2005 budgeted
compared with
2004 estimated

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

161,412
494,436
129,646
163,398
201,216
323,960
263,081
186,643
135,191
166,730
166,539
274,112

154,914
486,960
118,547
167,175
201,111
298,810
249,565
193,192
132,190
156,871
163,295
258,456

155,553
500,686
128,516
184,225
192,960
296,587
254,035
215,553
144,866
159,878
170,815
259,450

–4.0
–1.5
–8.6
2.3
–0.1
–7.8
–5.1
3.5
–2.2
–5.9
–1.9
–5.7

0.4
2.8
8.4
10.2
–4.1
–0.7
1.8
11.6
9.6
1.9
4.6
0.4

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

2,666,364

2,581,085

2,663,125

–3.2

3.2

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

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

Annual Report: Budget Review, 2005

Table E.2
Employment at the Federal Reserve Banks, by District, and of FRIT and OEB,
2004 and 2005
Average number of personnel except as noted
Amount change
District

2004
(budgeted)

2004
(estimated)

2005
(budgeted)

2004 estimated 2005 budgeted
compared with compared with
2004 budgeted 2004 estimated

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

1,152
3,066
1,205
1,409
1,995
2,178
1,857
1,284
1,248
1,609
1,365
2,182

1,136
3,040
1,177
1,433
2,009
2,194
1,883
1,283
1,270
1,536
1,347
2,058

1,099
2,947
1,110
1,543
1,832
2,042
1,577
1,123
1,298
1,429
1,243
1,924

–16
–26
–28
24
13
16
26
–1
22
–73
–18
–124

–37
–94
–67
111
–176
–152
–306
–159
28
–107
–103
–134

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

20,550

20,365

19,168

–185

–1,197

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

713
37

758
38

759
40

45
1

2
2

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

21,300

21,160

19,967

–140

–1,193

NOTE. See note to table E.1.
The term average number of personnel (ANP)
describes levels and changes in employment at the
Reserve Banks. ANP is the average number of employees

in terms of full-time positions for the period. For instance,
a full-time employee who starts work on July 1 counts as
0.5 ANP for that calendar year; two half-time employees
who start on January 1 count as 1 ANP.

Table E.3
Operating Expenses of the Federal Reserve Banks, and of FRIT and OEB,
by Operational Area, 2004 and 2005
Thousands of dollars except as noted
Percent change
Operational area

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

2004
(budgeted)

2004
(estimated)

2005
(budgeted)

270,789

263,731

291,841

–2.6

10.7

347,982

364,681

403,619

4.8

10.7

645,711
520,137

623,301
494,132

672,802
519,391

–3.5
–5.0

7.9
5.1

881,747

835,239

775,471

–5.3

–7.2

2,666,366

2,581,085

2,663,125

–3.2

3.2

2004 estimated 2005 budgeted
compared with compared with
2004 budgeted 2004 estimated

Bank Expenses and Employment

Table E.4
Employment at the Federal Reserve Banks, and of FRIT and OEB,
by Operational Area, 2004 and 2005
Average number of personnel except as noted
Amount change
Operational area

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

2004
(budgeted)

2004
(estimated)

2005
(budgeted)

2004 estimated 2005 budgeted
compared with compared with
2004 budgeted 2004 estimated

858

863

878

1,293

1,331

1,303

–28

2,795
2,607

2,748
2,587

2,799
2,592

–46
–20

51
5

4,464
9,283

4,381
9,251

3,114
9,281

–84
–32

–1,267
31

21,300

21,160

19,968

–140

–1,193

Table E.5
Expenses of the Federal Reserve Banks for Salaries of Officers and Employees,
by District, 2004 and 2005
Thousands of dollars except as noted
Percent change
2004
(budgeted)

2004
(estimated)

2005
(budgeted)

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

74,820
247,705
63,501
70,683
107,008
116,556
112,296
67,407
64,417
87,547
71,412
135,235

71,974
243,994
61,977
71,293
106,670
117,912
111,916
67,108
64,295
83,969
70,432
130,670

73,556
253,289
61,471
76,787
103,836
113,637
102,867
63,743
67,802
82,993
66,624
129,304

–3.8
–1.5
–2.4
0.9
–0.3
1.2
–0.3
–0.4
–0.2
–4.1
–1.4
–3.4

2.2
3.8
–0.8
7.7
–2.7
–3.6
–8.1
–5.0
5.5
–1.2
–5.4
–1.0

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

1,218,585

1,202,210

1,195,911

–1.3

–0.5

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

55,483
3,556

58,292
3,560

60,438
3,970

5.1
0.1

3.7
11.5

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

1,277,624

1,264,063

1,260,318

–1.1

–0.3

District

2004 estimated 2005 budgeted
compared with compared with
2004 budgeted 2004 estimated

Annual Report: Budget Review, 2005

Table E.6
Capital Outlays of the Federal Reserve Banks, by District, and of FRIT and OEB,
2004 and 2005
Thousands of dollars except as noted
Percent change
District

2004
(budgeted)

2004
(estimated)

20,140
56,379
10,178
29,086
22,005
12,633
77,219
29,375
3,766
22,204
86,151
29,709

24,608
54,687
9,722
40,373
15,094
16,621
64,502
35,126
4,628
34,208
90,201
16,233

22,130
59,454
10,225
34,592
41,249
9,521
71,651
25,472
5,192
28,339
33,113
38,547

22.2
–3.0
–4.5
38.8
–31.4
31.6
–16.5
19.6
22.9
54.1
4.7
–45.4

–10.1
8.7
5.2
–14.3
173.3
–42.7
11.1
–27.5
12.2
–17.2
–63.3
137.5

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

398,845

406,003

379,484

1.8

–6.5

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

67,408
1,150

63,326
350

51,010
0

–6.1
...

–19.4
...

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

467,402

469,679

430,494

0.5

–8.3

2005
(budgeted)

2004 estimated 2005 budgeted
compared with compared with
2004 budgeted 2004 estimated

. . . Not applicable.

Table E.7
Capital Outlays of the Federal Reserve Banks, by Category, 2004 and 2005
Thousands of dollars except as noted
Percent change
Category

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

2004
(budgeted)

2004
(estimated)

2005
(budgeted)

249,884
53,950
61,566

248,035
41,387
72,573

245,245
35,431
61,704

–0.7
–23.3
17.9

0.7
30.4
–15.2

97,072
4,930

100,577
7,107

83,516
4,599

3.6
44.2

–3.5
–30.6

467,402

469,679

430,494

0.5

–8.3

NOTE. Includes outlays for FRIT and OEB.
1. Includes other equipment purchases.

2004 estimated 2005 budgeted
compared with compared with
2004 budgeted 2004 estimated

Maps of the
Federal Reserve System

Annual Report: Budget Review, 2005

The Federal Reserve System

LEGEND
Both pages

Facing page

Federal Reserve Bank city
Board of Governors of the Federal
Reserve System, Washington, DC

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

map_pages.pmd

•

Federal Reserve Branch city

— Branch boundary

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 Sys
tem as of year-end 2004.

4/27/2005, 11:03 AM

Maps of the Federal Reserve System 47

map_pages.pmd

4/27/2005, 11:03 AM

Full text of Annual Report : Budget Review : 2005

FRASER