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ANNUAL REPORT OF THE FEDERAL RESERVE BOARD: BUDGET REVIEW

Board of Governors of the Federal Reserve System
2006

2006

Board of Governors of the Federal Reserve System

2006

April 2006
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 2005 Income and Expenditures
2 Operational Areas

The Budgets
7
8
9
9

Chapter 1
FEDERAL RESERVE SYSTEM
2006 System Budget Initiatives
Trends in Expenses and Employment
2006 Capital Budgets

11
11
11
12
12
15
15
16
16
18

Chapter 2
BOARD OF GOVERNORS
Planning Issues
Major Initiatives
Areas of Risk
Operations Budget by Operational Area
Capital Budget
Positions
2004–05 Budget Performance
Trends in Expenses and Employment
Office of Inspector General

19
20
21
23
23
24

Chapter 3
FEDERAL RESERVE BANKS
2005 Budget Performance
Factors Affecting the 2006 Budget
2006 Personnel Expenses
Risks in the 2006 Budget
2006 Capital Plan

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

31
31
32
32
33

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

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

Introduction 1

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 distributed throughout the nation, the Federal
Open Market Committee (FOMC), and
three advisory groups—the Federal
Advisory Council, the Consumer Advisory Council, and the Thrift Institutions
Advisory Council. The System was created in 1913 by Congress to establish a
safe and flexible monetary and banking
system. Over the years, Congress has
given the Federal Reserve more authority and responsibility for achieving
broad national economic and financial
objectives.
As the nation’s central bank, the Federal Reserve has many, varied responsibilities. It acts to ensure 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 mechanism. The Reserve Banks distribute currency and coin; process Fedwire, automated clearinghouse, and securities
transfers; and collect 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 discussion of the Federal Reserve’s responsibilities, see the Board publication The
Federal Reserve System: Purposes and
Functions.

Summary of 2005 Income and
Expenditures
In carrying out its responsibilities in
2005, 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 $1.4 billion in revenue from
priced services, 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 $29.0
billion in 2005. Earnings in excess of
expenses, dividends, and surplus are
transferred to the U.S. Treasury—in 2005
an estimated $21.5 billion. (These earnings are treated as receipts in the U.S.
budget accounting system and as anticipated earnings projected by the Office
of Management and Budget in the U.S.
budget.)
Beginning with the 1998–99 budget,
the Board of Governors has operated on
a two-year budget cycle and a four-year
planning cycle. Given their current business needs, the Federal Reserve Banks
maintain an annual budget cycle. For
more information on the budget processes, see appendix A.

Annual Report: Budget Review, 2006

Operational Areas

Supervision and Regulation

In 2005 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 2005, the Federal
Reserve conducted 563 examinations of
state member banks (some of them jointly
with state agencies) and 496 inspections
and 3,233 risk assessments of bank hold
ing companies; it acted on 3,442 interna
tional 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, 2004, and June 30, 2005, the System
conducted 239 consumer compliance
examinations, including 220* covering
state member banks and 19 covering for
eign banking organizations. Additionally,
during the 2004 reporting period, the Sys
tem performed 163 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 System maintains con
tinuous oversight of the banking industry
to ensure the overall safety and sound
ness of the financial system. This broader
responsibility is reflected in the System’s
presence in financial markets, through
open market operations, and in its role as
lender of last resort.

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 2005, the FOMC
held eight regularly scheduled meetings
and adjusted the federal funds rate eight
times.
A vast amount of banking and finan
cial data flows through the Reserve Banks
to the Board, where the data are 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 eco
nomic activity. Staff members provide
background information for the Board of
Governors and for each meeting of the
FOMC by preparing detailed economic
and financial analyses and projections
for the domestic economy and interna
tional markets. The Board and the
FOMC use these analyses and projections
in setting reserve requirements, setting
the discount rate (which affects the cost
of borrowing), and conducting open mar
ket operations. Staff members also con
duct longer-run economic studies on
regional, national, and international
issues.

* Corrected since April 2006 release of report.

Introduction 3

Services to Financial Institutions
and the Public
The Federal Reserve System plays a central 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, which the Reserve Banks distribute to the public through depository
institutions. Reserve Banks also receive
deposits of currency and coin from
depository institutions, identify suspect
currency that they forward to the U.S.
Secret Service, and destroy currency that
is unfit for circulation. In 2005, the
Reserve Banks received approximately
$659.2 billion in currency and $5.4 billion in coin from depository institutions,
distributed approximately $698.4 billion
in currency and $6.7 billion in coin, and
destroyed $83.2 billion in unfit currency.
The Reserve Banks also play a central
role in the nation’s payment systems by
collecting checks and providing a variety of electronic services for depository
institutions. In 2005, the Reserve Banks
collected approximately 12.2 billion
commercial checks, with a total value of
about $14.4 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 payments. In
2005, the Reserve Banks processed
approximately 8.3 billion ACH transactions, valued at about $16.0 trillion.
Approximately 11.6 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 trans-

fer funds to other institutions that maintain accounts at the Reserve Banks. In
2005, the Reserve Banks processed more
than 132 million Fedwire funds transfers,
valued at more than $518 trillion.
The Reserve Banks’ National Settlement Service allows participants in
private clearing arrangements to settle
transactions through their Federal
Reserve accounts. Approximately 55
local and national private arrangements,
primarily check clearinghouse associations but also other types of arrangements,
use the National Settlement Service. In
2005, the Reserve Banks processed over
440,000 settlement entries for these
arrangements.
The Reserve Banks’ Fedwire Securities Service provides securities services
for the handling of book-entry (computerbased) securities and the collection of
physical interest coupons and miscellaneous items. The service allows participants to electronically transfer to other
participants securities issued by the Treasury, federal government agencies, and
other approved entities. In 2005, participants originated approximately 24 million transfers valued at about $378 trillion. The noncash collection service,
through which maturing or called municipal coupons and bonds are presented for
collection, processed about 117,000
transactions in 2005. In February 2005,
the Board approved a plan to withdraw
from the noncash service by the end of
2005. The Reserve Banks stopped accepting deposits on September 30, 2005, and
withdrew from this service on December
30, 2005.

Services to the U.S. Treasury and
Other Government Agencies
Pursuant to the Federal Reserve Act, the
Reserve Banks provide fiscal agency and
depository services to the U.S. govern-

Annual Report: Budget Review, 2006

ment and other fiscal principals. These
services relate to securities custody and
transfer, payments, deposits, and customer support. The federal government
and other fiscal principals reimburse
the Reserve Banks for the cost to provide these services. In 2005, Reserve
Banks sought reimbursement of approximately $400 million. Reimbursement
was received or is expected for all of the
expenses incurred.
Reserve Banks issue, service, and redeem marketable Treasury securities and
savings bonds and process secondarymarket Fedwire securities transfers. In
2005, the Reserve Banks processed nearly
68,000 competitive and noncompetitive
bids for Treasury securities and printed
and mailed more than 32 million savings
bonds. The Reserve Banks operate two
book-entry (computer-based) securities
systems for the custody of Treasury
securities—the Fedwire securities service
and a separate computer application
designed for retail investors who plan to
hold these securities until maturity.
Almost all book-entry Treasury securities
are maintained on Fedwire, which is also
the nation’s principal securities transfer
mechanism.
Reserve Banks collect and disburse
funds on behalf of the federal government. The Reserve Banks maintain the
Treasury’s bank account, accept deposits, pay checks drawn on the Treasury’s
account, and make Fedwire and automated clearinghouse payments for the
Treasury. In 2005, the Reserve Banks
continued to assist Treasury in its efforts
to receive and make payments electronically. For example, the Reserve Banks
operate the Pay.gov Internet portal, which

permits the public to pay Treasury and
agencies over the Internet.
The Reserve Banks invest excess Treasury balances with more than 1,100
depository institutions, which pay interest to the Treasury for the use of the funds.
In 2005, the Reserve Banks invested
approximately $1.7 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
institutions 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 activities by the Board of Governors in supervising Board and Reserve Bank pro grams. 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 operational areas.

The Budgets

Federal Reserve System 7

Chapter 1

Federal Reserve System
For 2006, total operating expenses are
budgeted at $3,085.8 million, an increase
of 5.2 percent from estimated 2005
expenses. Of this total, $2,786.3 million
is for the Reserve Banks and $299.5 million is for the Board of Governors (tables
1.1 and 1.2).1 Revenue from priced services provided to depository institutions
is expected to total $912.6 million, or
29.6 percent of total budgeted operating
expenses. This revenue, combined with
claims for reimbursement and other
income, results in the recovery of 43.5
percent of the System’s budgeted 2006
operating expenses.2 When these items

1. The Board of Governors budgets on a twoyear cycle; in this chapter, 2006 values shown for
the System and the Board reflect the estimated firstyear effect of the Board’s 2006–07 budget.
2. Claims for reimbursement refers to costs
of fiscal agency and depository services provided
to the U.S. Treasury, other government agencies,
and other fiscal principals that are billed to these

are deducted from budgeted 2006 operating expenses, the net expenses of the
System show are 10.8 percent higher than
estimated 2005 net operating expenses
(table 1.1).
Not included in the budget for operations is the cost of new currency, budgeted
at $494.0 million for 2006, an increase
of 3.1 percent from the 2005 estimated
cost of $479.0 million.3 Including the cost
of new currency, the distribution of
expenses is similar to that in previous
years, with the Reserve Banks’ expenses
accounting for 78 percent of the total,
agencies. Other income comes from services provided on behalf of the U.S. Treasury that are paid
for by the depository institutions using the services,
which include the transfer of funds between
depository institutions and the Treasury.
3. The Federal Reserve pays for the printing
of new currency at the Bureau of Engraving and
Printing. This cost is not included in the Federal
Reserve operating expenses. For more information,
see appendix C, “Currency Budget.”

Table 1.1
Operating Expenses of the Federal Reserve System, Net of Receipts and Claims for
Reimbursement, 2004–06
Millions of dollars, except as noted
Percent change

2004
(actual)

2005
(estimated)

2006
(budgeted)

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

2,783.8

2,932.4

3,085.8

5.3

5.2

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

914.6
1.0
370.3

959.9
1.1
399.0

912.6
1.3
429.9

5.0
10.0
7.8

–4.9
18.2
7.7

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

1,497.9

1,572.4

1,742.0

5.0

10.8

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.
See text note 3.

2004–05

2005–06

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, 2006

Table 1.2
Expenses of the Federal Reserve System for Operations and Currency, 2004–06
Millions of dollars, except as noted
Percent change

2004
(actual)

2005
(estimated)

2006
(budgeted)

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

2,517.7
1,551.7
966.0

2,652.2
1,755.4
896.8

2,786.3
1,810.9
975.4

5.3
13.1
–7.2

5.1
3.2
8.8

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

266.1
196.3
69.8

280.2
200.3
79.9

299.5
221.8
77.7

5.3
2.0
14.5

6.9
10.7
–2.8

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

2,783.8
1,748.0
1,035.8

2,932.4
1,955.7
976.7

3,085.8
2,032.7
1,053.1

5.3
11.9
–5.7

5.2
3.9
7.8

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

514.0

479.0

494.0

–6.8

3.1

Item

2004–05

2005–06

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.

new-currency expenses accounting for
14 percent, and Board expenses accounting for the remainder (chart 1.1).
System employment is budgeted at
21,749 for 2006, a decrease of 242 from
the estimated 2005 level, largely because
of planned staff reductions by the Reserve
Banks, primarily in the check and support areas.

2006 System Budget Initiatives

Chart 1.1
Distribution of Expenses of the Federal
Reserve System, 2006
Currency, 14%

Board of
Governors, 8%

Reserve Banks, 78%

In response to the continuing decline in
check volume, the Reserve Banks have
again established aggressive spending
targets for their 2006 budgets. This spending restraint reflects the Banks’ efforts to
reduce direct operating costs of the check
service and to reduce 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 reducing check-service operating costs
by streamlining management and administrative structures, decreasing the number of check-processing locations, and
increasing processing capacity at some
locations. The Banks’ 2006 budgets
include funding for initiatives to prepare
for downsizing in the check service. Bank
budget plans also fund increases in central bank functions, monetary policy, and
supervision and regulation, as well as initiatives to improve the long-term efficiency of cash operations. The major fac-

Federal Reserve System 9

tors affecting the 2006 Reserve Bank
budgets are outlined in more detail in
chapter 3.

Chart 1.3
Cumulative Change in Federal Reserve
System Expenses and Federal Government
Expenses, 1997–2006
Includes special projects

Trends in Expenses and
Employment

Percent

From actual 1997 levels to budgeted 2006
amounts, the operating expenses of the
Federal Reserve System have increased
an average of 3.8 percent per year
(2.2 percent per year when adjusted
for inflation) (chart 1.2). Over the same
period, nondefense discretionary spending by the federal government has
increased an annual average of 5.8 percent (chart 1.3). Over the 1997–2006
period, Federal Reserve System employment has decreased 2,972 (chart 1.4).
As mentioned above and detailed
in chapter 3, the primary factors in
Reserve Bank spending restraint and
in the substantial staffing decreases
are restructuring efforts in the checkprocessing function and efficiency measures in support and overhead functions.
Over the same ten-year period, check
costs increased by 0.7 percent and staffing levels declined by 5.0 percent. Support and overhead costs decreased by 0.8
percent and staffing levels declined by
5.2 percent.

Federal government

40
Federal Reserve

1997

1999

2001

2003

2005

NOTE: Federal government expenses are discretionary
spending less expenditures on defense.
For 2005, estimated; for 2006, budgeted.

2006 Capital Budgets
The capital budget for the Reserve Banks
and the Board totals $488.8 million, with
$474.2 million budgeted for Reserve
Banks and Federal Reserve Information
Technology (FRIT) and $14.6 million
budgeted for the Board. As in previous
years, the 2006 capital budgets include
funding for projects that support the strategic direction outlined by the individual
Reserve Banks, System business leaders,
and the Board. These strategic goals
focus on investments that improve operaChart 1.4
Employment in the
Federal Reserve System, 1997–2006

Chart 1.2
Operating Expenses of the
Federal Reserve System, 1997–2006

Includes special projects
Billions of dollars
Thousands of persons

Current dollars

3.0

2000 dollars1

2.0
23
1.0
21

1997

1999

2001

2003

2005
1997

NOTE: For 2005, estimated; for 2006, budgeted.
1. Calculated with the GDP price deflator.

1999

2001

2003

2005

NOTE: For 2005, estimated; for 2006, budgeted.

Annual Report: Budget Review, 2006

tional efficiencies and services to Bank
customers and on providing a safe, quality work environment. More detailed discussions of the Board and Reserve Bank
capital budgets are included in chapters
2 and 3, respectively.

Board of Governors

Chapter 2

Board of Governors
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 2006–09 planning period and the 2006–07 budget
period, the Committee on Board Affairs,
assisted by a senior-level Staff Planning
Group, and staff in the Planning and Budget Section of the Management Division,
guided the process, which resulted in a
budget objective of $609.5 million for
operations. This budget objective was
approved by the Board in September and
the budget was approved in December.

mittee on Board Affairs, which form the
basis of the approved budget. They will
also serve as the basis for the 2006–07
Performance Budget prepared as part of
the Board’s voluntary compliance with
the Government Performance and Results
Act.

Planning Issues

• Attract and retain high-quality staff.
Initiatives to improve the Board’s ability to attract and retain staff include
enhancements to the cash award program for staff and to the variablepay program for economists, attorneys, and officers; a 3.8 percent merit
increase for 2006 and a placeholder
of 3.8 percent for the 2007 merit
increase; a compensation study; and
actions to enhance productivity and
meet new requirements, such as
improved information technology
equipment, access to enhanced data
sets, and a slight increase in staffing
to assist with current analysis.
• Information technology (IT). Funding
is provided for the Board to comply
with electronic-government initiatives
such as improved public access to
data, federal information security management, and section 508 compliance.
• Workload. A small increase in the
number of positions, a reallocation
of positions to meet higher-priority
requirements, and the filling of a number of vacant positions are necessary
in order to comply with new laws that
affect Board operations, such as our

The Staff Planning Group reviewed the
planning materials submitted by the
Board’s divisions and offices and identified the following major issues that will
have a significant effect on Boardwide
operations over the planning period:
• the full two-year cost of current initiatives such as reorganizations in the
Division of Consumer and Community
Affairs and the Management Division,
creation of the Quantitative Unit in the
Division of Banking Supervision and
Regulation, and creation of the Monetary and Financial Studies Section in
the Division of Monetary Affairs
• legislative and executive mandates
for a number of activities, including
physical and information security and
electronic-government initiatives
• the need to attract and retain highquality staff
• the need in the biennium to address
office space requirements
These issues are reflected in the
resource-allocation decisions of the Com-

Major Initiatives
To address these major planning issues,
the approved budget includes the following initiatives and projects for the 2006–
07 period.

Annual Report: Budget Review, 2006

expanded role relative to the Reserve
Banks in the implementation of the
Sarbanes-Oxley Act (SOX), Board
implementation of the Committee on
Sponsoring Organizations (COSO)
framework and compliance with SOX,
preparation for Basel II, and other key
initiatives.
• Security and continuity of operations.
Several factors have contributed to a
significant increase in the budget for
security and continuity of operations.
These include market pressures in the
security field as Washington agencies
continue to expand security staff, a
slight increase in overtime for coverage of additional security posts during construction of the security perimeter, some new overtime payments to
remain competitive in the marketplace,
and other actions to enhance employee
safety and the Board’s ability to operate in a contingency environment.
• Facilities. In line with the Board’s strategic plan, capital investments are
planned for the three Board facilities,
as discussed in the capital budget section below. Additional noncapital
improvements are also planned for all
three facilities.

• significant changes in or shocks to the
economy or financial system that create a material increase in workload
• terrorist activity requiring addi tional security and contingency
enhancements
• increased workload created by laws or
decisions to expand or modify central
bank operations
• changes to the position-vacancy-rate
assumptions used in developing the
salary budget and a need for 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, supervision and regulation, services to financial
institutions and the public, and Federal
Reserve System policy direction and
oversight (tables 2.1 and 2.2). Following
is a summary discussion of the resources,
including support and overhead, budgeted
for each area for 2006–07.

Monetary and Economic Policy
Areas of Risk
Despite a careful and coordinated planning effort, future developments, such as
the following, could require resources
beyond what is currently approved:
• a merit increase greater than the
3.8 percent for 2007 or a higher rate
of increase in health insurance costs
• changes to assumptions of turnover
due to demographics and the estimated
salaries of successors
• pressure in key areas requiring additional salary or benefit packages
in order for the Board to remain
competitive

The 2006–07 budget for the monetary and
economic policy function is $243.6 million, an increase of $21.1 million, or an
average of 4.1 percent per year.
As financial markets change, the monetary and economic policy function
continues to evolve in order to develop
effective monetary policy through open
market operations, discount rates and
the administration of the discount window, and reserve requirements. The
Board has been evaluating the data used
in crafting monetary policy, and it plans
to make changes in the 2006–07 biennium. Initiatives will be taken to expand
surveys and gather new data sets related
to industrial output and commercial

Board of Governors

Table 2.1
Expenses of the Board of Governors for Operational Areas and
Office of Inspector General, 2004–07
Thousands of dollars, except as noted
Average annual
percent change
Operational area or
Office of Inspector General

2004–05
(budgeted)

2004–05
(estimated)

2006–07
(budgeted)

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

224,590
217,990

224,273
217,682

243,583
247,015

–0.1
–0.1

4.1
6.4

10,156

10,142

11,668

–0.1

7.2

85,834

85,712

107,209

–0.1

11.8

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

538,570

537,809

609,475

–0.1

6.4

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

8,533

10,237

–0.0

9.5

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

2006–07
2004–05
budgeted
estimated
compared with compared with
2004–05
2004–05
budgeted
budgeted

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, by Operational Areas,
Support and Overhead, and Office of Inspector General, 2004–07
Average annual
percent change
Operational area, support and
overhead, or
Office of Inspector General

2004–05
(budgeted)

2004–05
(estimated)

2006–07
(budgeted)

2006–07
2004–05
budgeted
estimated
compared with compared with
2004–05
2004–05
budgeted
budgeted

426
385

434
400

435
406

0.9
1.9

1.1
2.7

2.1

173

170

169

–0.9

–1.2

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

860

901

914

2.4

3.1

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

1,868

1,930

1,949

1.6

2.1

Reimbursable IRM support2 .......

0.0

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

1,895

1,957

1,976

1.6

2.1

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

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, 2006

activity and consumer and mortgage
credit. At the same time, other data, such
as those gathered for the M3 series, which
are serving a less valuable purpose, will
be discontinued.
A continuing challenge in this area is
recruiting and retaining qualified staff.
However, implementation of new compensation policies, such as variable pay,
has been helpful.

Supervision and Regulation
The 2006–07 budget for the supervision
and regulation function is $247.0 million,
an increase of $31.1 million, or an average of 6.4 percent per year.
The U.S. banking system has evolved
into a sector with a small number of large
complex banking organizations operating
across wide geographic regions, and
numerous smaller institutions focused on
local communities or regional areas. The
Division of Consumer and Community
Affairs and the Division of Banking
Supervision and Regulation have
realigned their structures in response to
these changes by creating Large Financial Institutions/Large Banking Organization units within their organizations and
enhancing their oversight of the conduct
of supervision. The changes will help the
Board improve the quality and consistency of supervision for a range of institutions by promoting a more explicit portfolio-management approach as well as
enhanced quality assurance within the
supervision function. A number of significant automation projects supporting this
work are included in the capital budget.
During the 2006–07 budget period, this
function will also devote resources to the
implementation of the Basel II capital
accord and will lead the development of
Electronic Applications (E-Apps), an
electronic system that financial institutions will use to file applications and that
will be used throughout the Federal
Reserve System.

Services to Financial Institutions
and the Public
The 2006–07 budget for oversight of
Reserve Bank services to financial institutions and the public is $11.7 million,
an increase of $1.6 million, or an average of 7.2 percent per year.
A portion of the increase is attributable
to enhancements to the CASH Statistical
Data System and resolution of production
issues. Additional funds were also provided for the administration of a survey
to assess the effect of the Check Clearing
for the 21st Century Act (Check 21) on
various aspects of check processing.
The Board expects its workload to
comprise, among other things, ongoing
assessment of the Reserve Banks’
(1) business strategies addressing longterm check services viability and check
infrastructure, (2) cash infrastructure
study, and (3) implementation of major
technological projects.

System Policy Direction and
Oversight
The 2006–07 budget for System policy
direction and oversight is $107.2 million,
an increase of $17.0 million, or an average of 11.8 percent per year. The increase
would have been 3.2 percent per year, but
the budget for the audit of the Reserve
Bank audits was moved from overhead
to this functional area to better manage
the budget.
This budget reflects increased funding
for personnel costs, transfer of the
Reserve Bank external auditor contract,
including costs for financial-statement
attestation, increases in foreign travel and
software requirements, significant growth
in the use of the System interchange program, and rate changes for services provided by the Division of Information
Technology.
The Board expects that the workload
in this area will continue to be influenced

Board of Governors

primarily by the key strategic, technological, environmental, and infrastructure
changes affecting the Reserve Banks’
payment services, fiscal agency activities,
and major support functions. In addition,
staff will continue to participate on work
groups and perform analysis in support
of the Board’s international work on payments systems.

Capital Budget
The Board’s proposed 2006–07 capital
budget is $31.4 million. Of this total,
$18.6 million supports continued security enhancements and large building
projects. Major facility projects include
enhancing the perimeter security, installing sprinklers in the Martin Building
and in the data center, renovating the
main cafeteria, replacing the sanitary risers in the Eccles/Martin complex, and
installing vehicle barriers at all three
buildings.
Information technology projects of
$4.1 million include computer server
replacements, network infrastructure,
and data security enhancements. Software
and other office automation–related
expenses of $7.2 million include projects
such as the Shared National Credit Program and the National Information
Center Rearchitecture. The Division of
Banking Supervision and Regulation
plans to upgrade the Shared National
Credit Program by developing an interagency central repository, standard izing the process of collecting data
from external sources, and enhancing
security. The division will also modify
the infrastructure of the National Information Center to reduce redundant processes and simplify the system for end
users.
The remaining $1.5 million is for
non-automation-related expenses, such
as purchases of furniture and office
equipment.

Positions
For the 2006–2007 budget period, staffing requests resulted in a net increase of
eighteen positions in the Board’s position
authorization, bringing the total to 1,976
positions (see appendix D, table D.2).
The Management Division received a
net increase of eleven positions to meet
the demands of an increasing workload.
During the planning process, a fulltime carpenter and an apprentice were
approved to handle office reconfigurations, thus reducing contractual services.
To meet the Board’s COSO/SOX requirements, three additional analyst positions
were also approved. Five positions (four
mail clerks and one technician) were
approved for conversion to higher-level
positions, to assist with workload saturation. In addition, the division is creating
four permanent positions to allow it
to eliminate four dual occupancies in
the procurement, training, health, and
travel functions. Beyond these position
increases, the division plans to self-fund
five positions in the compensation,
administration, information systems, and
workers’ compensation area. Some of
these positions are offset by the abolishment of two positions (in program direction and planning and budget), and some
of the funding will be from outside the
personnel services area.
The Division of Consumer and Community Affairs had a net increase of five
positions, one of which will be for information systems development support
previously provided by the Division of
Information Technology and four of
which will be for overall compliance risk
associated with management of large
financial institutions and large complex
banking organizations.
In the Division of Monetary Affairs, an
additional economist position was added
in the Monetary Studies Section because
of the increasing applicability of academic research to the framework for monetary policy strategies and to the formu-

Annual Report: Budget Review, 2006

lation, implementation, and communication of monetary policy, as well as potential changes to analytical elements of the
Bluebook.

Chart 2.1
Operating Expenses of the
Board of Governors, 1996–2007
Millions of dollars

320

2004–05 Budget Performance

Current dollars
240

During the 2004–05 budget period,
although the operating budget remained
unchanged, a number of divisions reallocated funds to higher-priority projects,
such as development of a web-enabled
Check 21 survey. Final expenses for
Board operations are expected to be close
to the $538.6 million budget.
Average employment during the 2004–
05 biennium was approximately 1,819.
This is 84 employees (4.8 percent) higher
than the 2002–03 average of 1,735. The
majority of additions are related to
completion of the hiring of security staff
approved in the prior budget cycle. In
addition, the variable-pay program, which
was created to increase recruitment and
retention of economists, attorneys, and
officers, has been successful in decreasing turnover and will continue as a Board
program.
The largest contributing factor in the
increase in the budget for goods and services is utilities. The cost of electricity
rose sharply when a moratorium on rate
increases ended. Also, during the 2004–
05 budget cycle, steam prices increased
numerous times, and the General Services
Administration, which provides steam,
has told its customers that prices will
again rise dramatically in the near future
because the price of the natural gas used
to generate steam continues to escalate.

2000 dollars
160
80
1996

1998

2002

2004

2006

1996–97 biennium (chart 2.1). The
increase is mainly attributable to security
initiatives, strategic human capital initiatives, and the increasing complexity of
Board work over this period. The
increased complexity required a net
increase in positions and higher average
grades, higher salaries, and increasingly
sophisticated automation systems to manage ever-increasing volumes of data. The
sharply higher security costs are mainly
attributable to additional personnel.
Approximately three-fourths of the
Board’s operating expense is for personnel (chart 2.2); consequently, analysis of
trends is heavily tied to staffing levels.
From 1996 to 2007, the number of
authorized positions for Board operations
rose from 1,733 to 1,976, a net increase
of 243, or 14.0 percent (chart 2.3). HowChart 2.2
Expenses for Personnel Services at the
Board of Governors, 1996–2007
Millions of dollars

225

Current dollars

Trends in Expenses and
Employment
The rate of increase within the 2006–07
budget is 6.4 percent per year, which is
equal to the 6.4 percent projected average annual rate of increase since the

2000

2000 dollars

150
75

1996

1998

2000

2002

2004

2006

Board of Governors
Chart 2.3
Employment and Authorized Positions at
the Board of Governors, 1996–2007
Thousands

Authorized positions

1.9
1.8
1.7

Employment
1.6
1996

1998

2000

2002

2004

2006

N OTE: Year-end data. Excludes summer intern and
youth positions as well as positions for the Office of
Inspector General. These positions number 67 for 2006
and 2007. Includes positions that provide support to the
Federal Financial Institutions Examination Council for processing data collected under the Home Mortgage Disclosure Act and the Community Reinvestment Act.

ever, over 60 percent of this increase in
positions is for security precautions.
Reflecting the growing complexity of the
Board’s work, the average grade for professional staff rose from 25 to 26.
During the ten-year period 1998–2007,
changes in financial services, many
associated with automation enhance ments, have increased the complexity of
supervisory safety-and-soundness activities. So that the Board could adequately
perform these activities, as well as
increase attention on consumer issues,
including collection and analysis of data
collected under the Home Mortgage Disclosure Act and Community Rein vestment Act, a net of thirty-four positions have been added. (Additionally, to
offset the additional resources needed for
new work, many positions associated with
lower-priority projects were eliminated.)
The increasing complexity of monetary
policy issues has resulted in an increase
of twenty-five positions.
Substantial changes have occurred in
the overall Reserve Bank environment,
including consolidation of check processing and related changes to the governance
process. Nineteen positions have been
added as a result of these changes and

increased interest in private-sector clearing and settlement. Over a hundred security-related positions have been added.
Implementation of the Sarbanes-Oxley
Act has resulted in the addition of three
positions dedicated to ensuring compliance with internal control requirements
within the Board’s operations.
Finally, a net decrease of seven administrative and support positions has
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
acquisition of additional office space.
While the number of positions at the
Board has fluctuated during the 1998–
2007 period, the salary budget (not
including retirement and insurance benefits) has remained relatively stable at
roughly 63 percent of operating expenses.
The portion of operating expenses
devoted to retirement and insurance is
now 11 percent, an increase of approximately 1 percentage point during the
period as a result of significant increases
in health insurance premiums and administrative actions to enhance benefits such
as the Thrift Plan.
Over the 1998–2007 period, the average annual increase in expenses for goods
and services has been 6.4 percent (chart
2.4). The largest increase has been in contractual professional services. This
Chart 2.4
Expenses for Goods and Services of the
Board of Governors, 1996–2007
Millions of dollars

90
Current dollars
60
2000 dollars
30

1996

1998

2000

2002

2004

2006

Annual Report: Budget Review, 2006

growth has resulted primarily from four
factors: (1) increased use of contracting
services in the Information Technology,
Management, and Banking Supervision
and Regulation divisions; (2) significant
increases in the amount and cost of data
acquired from third parties; (3) procurement of outside legal services; and
(4) development and implementation of
software and office automation tools.
Facility, security, and contingency planning projects also contributed to the
increase. Partially offsetting the overall
increase is the rental income received
from New York Avenue and the Richmond relocation site.

Office of Inspector General
The 2006–07 budget of $10.2 million for
the Office of Inspector General (OIG) is
separate from the Board’s budget. The
OIG’s budget is prepared in a manner that
is consistent with the preparation of the
Board’s operating budget. In conformance 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.

Federal Reserve Banks

Chapter 3

Federal Reserve Banks
The 2006 operating budgets of the twelve
Reserve Banks total $2,786.3 million.1
The 2006 total is $134.1 million, or 5.1
percent, above estimated 2005 expenses.
This increase is largely due to costs for
further infrastructure changes and operational improvements in the check service
and increased costs in the monetary policy
and supervision and regulation functions.
These increases are partially offset by
savings from consolidated Treasury
operations, efficiency initiatives in the
cash area, savings from prior checkrestructuring efforts, and continued
efforts to streamline Reserve Bank support areas.
Approximately 48 percent of Reserve
Bank expenses in the 2006 budget are
1. These expenses include those budgeted by
Federal Reserve Information Technology (FRIT)
and the Office of Employee Benefits (OEB) that
are chargeable to the Reserve Banks.

offset by revenues from priced services
(33 percent) and reimbursable claims for
services provided to the Treasury and
other agencies (15 percent). Budgeted
2006 revenue is lower than the 2005
estimated level, primarily as a result of
declining check volume. Reimbursable
claims will increase 7.8 percent in 2006,
reflecting additional initiatives performed
by the Reserve Banks on behalf of the
Treasury. (See table 3.1.)
Total 2006 projected average number
of personnel (ANP) for the Reserve
Banks, FRIT, and OEB is 19,869, a
decrease of 264, or 1.3 percent, from
2005 estimated staff levels (see table
3.2).2 The 2006 staffing decrease contin2. ANP is the average number of employees
in terms of full-time positions for the period. For
instance, a full-time employee who works one-half
of the year counts as 0.5 ANP for that calendar
year; two half-time employees who work the full
year count as 1 ANP.

Table 3.1
Expenses of the Federal Reserve Banks, Net of Receipts and Claims for Reimbursement,
2005 and 2006
Millions of dollars except as noted
Change

2005
(estimated)

2006
(budgeted)

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

2,652.2

2,786.3

134.1

5.1

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

959.9
1.1
399.0

912.6
1.3
429.9

–47.3
0.2
30.9

–4.9
18.2
7.8

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

1,292.2

1,442.5

150.3

11.6

Item

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

Amount

Percent

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

Annual Report: Budget Review, 2006

ues the trend of workforce reductions that
began in the late 1990s. The 2006 budgeted staff reduction reflects the effect
of infrastructure changes and volume
declines in both check and currency processing, as well as the full-year effect of
consolidation of Treasury retail securities
operations. Lower staffing levels are also
the result of efforts to increase efficiency
in internal support areas such as information technology and human resources.

2005 Budget Performance
Total 2005 expenses are estimated to be
$2,652.2 million, a decrease of $10.9
million, or 0.4 percent, from the approved
2005 budget of $2,663.1 million. The
Banks, FRIT, and OEB estimated 2005
ANP at 20,133, an increase of 166 from
budgeted 2005 levels. The expense
underrun was mainly due to lower costs
for the Treasury Web Applications Infrastructure (TWAI) and FRIT.3 A $12.0
million decrease in TWAI costs reflects
lower vendor costs after contract terms
were negotiated in 2005. A $3.0 million
reduction in FRIT costs was largely
attributable to lower hardware and soft3. TWAI provides a multi-tiered web environment that balances the business need for a secure
access system with the need to provide public
access to Treasury applications.

ware expenses resulting from efficiency
initiatives such as server management and
lower fees resulting from renegotiated
vendor contracts.
Also contributing to the underrun were
a $2.6 million cost reduction in cash
operations resulting from volume
declines at several Banks and a $2.0 million reduction in costs for performing
Treasury services resulting from a laterthan-expected implementation of the new
Go Direct campaign, an effort to convert
recipients of Social Security and Supplemental Security Income checks to direct
deposit.
These reductions were partially offset
by higher-than-budgeted costs in several
areas, including check operations ($7.3
million), information technology ($5.0
million), and security ($3.7 million) and
by an infrastructure initiative in the cash
area ($1.4 million). The increase in check
costs were due to a lower-than-projected
decline in volume, delays in the schedule
to consolidate three offices’ check operations, and higher Check 21 expenses.
Information technology costs increased
because of initiatives in the Treasury
and System open market areas. Other
increases include higher costs in the
security function and one-time costs
related to infrastructure changes in cash
operations. These changes, which were
announced after the final 2005 budget was

Table 3.2
Employment at the Federal Reserve Banks, FRIT, and OEB, 2005 and 2006
Average number of personnel except as noted
2005
(estimated)

2006
(budgeted)

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

19,328
765
40

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

20,133

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.

Change
Amount

Percent

19,069
757
43

–259
–8
3

–1.3
–1.0
7.5

19,869

–264

–1.3

Federal Reserve Banks

approved, involve transitioning cash services at several branches to cash depots.

Factors Affecting the 2006 Budget
For 2006, the Reserve Banks have budgeted to expand economic research and
community outreach efforts, to enhance
expertise in the supervision and regulation function, and to continue to provide
services as requested by the Treasury.
The 2006 budget also supports Reserve
Banks’ efforts to increase efficiency and
reduce costs and includes funding of several initiatives to improve long-term
operational efficiencies in both cash and
check operations.

Central Bank Services
Total costs for monetary policy and economic research are budgeted to increase
by $25.3 million, or 8.5 percent, in the
2006 budget. Staffing levels are budgeted
to increase by 51 ANP, in part because of
the full-year effect of several Banks’
efforts initiated in 2005. In large part,
the increase reflects Banks’ efforts to
strengthen support to monetary policy
formulation and increase emphasis on
regional economic analysis and payments
research.
Supervision and regulation costs are
budgeted to increase by $31.0 million, or
6.0 percent, from the 2005 estimate. Staffing levels have declined slightly in recent
years—primarily as a result of the loss of
staff in a highly competitive job market—
but are budgeted to increase by 101 ANP
in the 2006 budget. Increases in the 2006
budget are related to efforts to bring staff
up to optimal levels, recruit and retain
staff with specialized skills, enhance the
supervisory processes associated with
compliance risk and risk-management
practices, and develop revised capital
adequacy guidance.
Reserve Banks are looking to enhance
their presence and strengthen outreach

efforts, particularly in regions where
there is only a limited Federal Reserve
presence.
Therefore, costs for public programs,
including outreach efforts aimed at
depository institutions, are budgeted to
increase by $6.6 million, or 4.6 percent,
from the 2005 estimate, and staffing levels are budgeted to increase by 16 ANP.
The budget for cash operations was
increased by $16.7 million, or 4.1 percent, to fund initiatives to improve the
long-term efficiency of cash operations,
define future software requirements, and
upgrade high-speed currency-processing
machines. These increases are offset
slightly by staffing reductions due to
declining volume at several Reserve
Banks and infrastructure changes. As part
of the effort to improve efficiency, three
Reserve Bank offices will shift their
currency-processing operations to other
Reserve Banks and set up cash depots. In
setting up a cash depot, the Federal
Reserve contracts with a third party, usually an armored carrier, to accept currency
deposits from, and distribute currency
orders to, depository institutions. The
Reserve Bank in the city nearest the
depot processes the deposits, prepares the
orders for the depots, and pays for transportation between the Reserve Bank and
the depot operator.

Treasury-Related Functions
Costs for Treasury services, which are
fully reimbursed by the Treasury, are budgeted to increase by $30.4 million, or
8.0 percent, in the 2006 budget. The
increase reflects investments in electronic
payment technology, partially offset by
efforts to improve the efficiency of other,
more labor-intensive operations through
consolidations. For several years, the Federal Reserve, at the request of the Treasury, has focused on improving its automation of electronic payments projects,
including the development of the Trea-

Annual Report: Budget Review, 2006

sury Web Application Infrastructure
(TWAI). Total costs for TWAI are budgeted to increase by $4.7 million, or 7.4
percent, to support TWAI enhancements
and projected growth in use of TWAI.
Costs for the Treasury’s Payment
Application Modernization (PAM)
project are budgeted to increase by $5.8
million in the 2006 budget, mainly for
additional technical staff. PAM will
replace approximately 30 Financial Management Service (FMS) applications used
to disburse one billion federal payments
annually. Costs for the Treasury Check
Information System (TCIS) will increase
$3.0 million. TCIS will replace the FMS’s
aging check payment and reconcilement
system. The new system will provide an
up-to-date, web-based means of managing 250 million Treasury check payments
annually.
Costs related to electronic-government
projects—Pay.gov, paper check conversion, and electronic check processing—
are budgeted to increase by $2.3 million,
primarily due to additional software
amortization, transaction fees for user
verification services, and staff additions
of seven ANP. In addition, costs related
to the stored-value card program will
increase $2.2 million as a result of software and equipment depreciation and
continued expansion of the program.
The consolidation of Treasury retail
securities (TRS) operations, completed in
October 2005, continues to produce savings in Treasury operations. The effort,
which began in 2004, reduced the number of offices with savings bond and
TreasuryDirect operations to two. Since
2003, costs for TRS have decreased $32.6
million, or 30 percent, and staffing levels have decreased 134 ANP.

Check Services
Total check service expenses are budgeted to increase by $5.7 million, or
0.9 percent, from the 2005 estimate. The

increase reflects one-time costs to prepare
for further consolidations of check operations, as well as other initiatives underway to improve the efficiency of check
operations, including investments in
Check 21 technology to accommodate
increased volumes. These increases are
offset partially by lower costs as a result
of infrastructure changes in 2005 and
early 2006. Check-processing staffing
levels are budgeted to decrease by 338
ANP, a decrease slightly offset by an
additional 24 in national administrative
functions.
Since 2001, total check costs have
declined $135.8 million and staffing levels have declined by 1,732 ANP. During
this period, the Federal Reserve undertook two major efforts to improve the
efficiency of check operations: (1) modernizing check operations by installing
uniform software and hardware for check
processing, imaging, and adjustments and
(2) reducing the number of check processing sites to better align the Federal
Reserve check-processing infrastructure
with the evolving market. As of yearend 2005, a total of nineteen checkprocessing sites were consolidated, with
an additional five sites planned to be consolidated by early 2007, reducing the
number of sites from forty-five in 2003
to twenty-one.

Support Services
After several years of dramatic decreases,
costs for Reserve Bank support functions
are budgeted to increase slightly
($9.3 million, or 1.2 percent) in 2006. The
increase is due mainly to a $10.5 million
increase in depreciation costs associated
with completed security and building
projects. These increases are offset partially by lower costs in other support
areas. Since 2001, support costs have
declined $90.8 million, or 10.1 percent,
reflecting efforts to improve efficiencies
in several support areas, including infor-

Federal Reserve Banks

mation technology, financial management, human resources, and business
development. As has been the case in the
last few years, staffing levels in the support functions will continue to decline; a
104 ANP decrease is projected in 2006.
In 2006, local information technology costs are budgeted to decrease by
$5.2 million and 69 ANP as Banks continue to align services with their changing needs. Since 2001, local information
technology costs have declined $62.2
million and staffing levels have declined
728 ANP, largely because of efficiencies
gained by centralizing several functions
and lower overall Bank staffing levels,
which reduced demand for desktop
services.
After several years of significant reductions, local human resource administrative costs are expected to decline slightly
in 2006 ($1.3 million). Since 2001, costs
in the human resource function have
declined $14.2 million and staffing levels have declined by 246 ANP as the
Banks move to more centralized functions. The reductions are a result of efficiencies gained through consolidations of
PeopleSoft, payroll, and System medical
plans, as well as outsourcing the responsibility for thrift and retirement plan
administration to OEB.

2006 Personnel Expenses
Budgeted officer and employee salaries
and other personnel expenses total
$1,810.9 million, which is 3.2 percent
above the 2005 estimate. This total
includes an increase of $58.3 million to
fund salary administration programs for
officers and employees.4 Reserve Bank
merit pools are budgeted to increase by
4. Salary administration represents the budgeted funds that are available to increase compensation to officers and employees in the upcoming
year. It does not include adjustments for changes
in staffing levels, turnover and lag in hiring, and
overtime.

3.7 percent for officers and 3.5 percent
for employees, about the same as in 2005.
Variable-pay programs, which are budgeted to increase by $3.9 million, or
0.3 percent, account for 3.8 percent of
2006 salary expense. Of the increase,
approximately 75 percent is related to
incentive pay. The Reserve Banks’ salary administration programs continue to
emphasize pay-for-performance in 2006.
The ANP at Reserve Banks, FRIT, and
OEB is projected to decrease by 2,447
by 2006, primarily because of planned
staff reductions associated with financial
services restructuring. Turnover in
2006 is expected to be higher than in
2005, in large part as a result of continued consolidation in check and cash
services.
Retirement and other benefit expenses,
which account for 14.8 percent of 2006
Reserve Bank budgets, are anticipated to
increase by approximately $18.0 million,
or 4.6 percent. The primary driver of the
increase is higher health care costs. Over
the past several years, Reserve Banks
have undertaken a number of initiatives
to control the increase in health care costs,
including increasing insurance deductibles and co-pays, replacing several
local plans with national plans, consolidating prescription drug programs, and
renegotiating administrative services contracts. In 2006, the Banks will continue
to identify opportunities for controlling
health care costs, such as implementing
new wellness and disease-management
programs that provide employees with
information about healthy lifestyles and
early detection of disease.

Risks in the 2006 Budget
Risks to the 2006 budgets consistently
cited by the Reserve Banks include the
effect of material changes to checkrestructuring schedules or plans, significant variances in check volume from budgeted assumptions, changes in the scope

Annual Report: Budget Review, 2006

or direction of the various Treasury
projects, and possible additional cash
infrastructure changes.
The check service continues to be an
area in which Banks have identified a
considerable amount of risk, primarily
because of the number, scale, and
dynamic nature of initiatives in the area.
A total of four check-processing consolidations are planned for 2006. Check
administrative functions are now handled
from central locations, and the Reserve
Banks have announced plans to further
consolidate check-adjustment operations
from twelve to five sites. Delays in the
check-restructuring schedule could result
in higher-than-budgeted personnel and facility costs. In addition, the budget would
be affected by any unbudgeted write-offs
as a result of restructuring. The Reserve
Banks’ Retail Payments Office also cites
a risk associated with increases in fuel
costs.
Projected check volume reflects anticipated run-off at processing sites that have
been consolidated at other locations and
the increasing shift from paper-based to
electronic payments. The combination of
these two factors has resulted in a 2006
projected volume decrease of about
14 percent. If the decease in volume is
not as great as planned, as several Banks
experienced in 2005, the Banks would
incur costs for higher-than-planned staff
levels (which would be offset by the revenue associated with the increased
volume).
As in the past, unforeseen requests
from the Treasury or changes in scope and
direction of projects would add costs and
could require additional resources; however, the Reserve Banks are fully reimbursed for those costs by the Treasury. In
the cash function, the infrastructure
changes could increase costs at several
Reserve Banks. If additional cash depot
arrangements are approved, the affected
offices could see an increase in personnel severance costs in 2006.

2006 Capital Plan
The 2006 capital budget submitted by the
Reserve Banks, FRIT, and OEB totals
$474.2 million. As in previous years, the
2006 capital budget includes funding for
projects that support the strategic direction outlined by the individual Reserve
Bank and System plans. These strategies
focus on improving operational efficiencies and services to Bank customers and
providing a safe and quality work environment. In support of these strategies,
the 2006 budget identifies seven major
categories of capital outlays: building
projects and facility improvements, security enhancements, automation and communication initiatives, payment system
improvements, cash services initiatives,
Treasury initiatives, and miscellaneous
acquisitions.
The proposed capital budget includes
$252.0 million for building-related
projects and facility improvements and
$64.2 million for security enhancements.
Nearly $104.0 million of the capital budgeted for Reserve Bank facilities is for
new building projects in Kansas City and
Seattle.
The Reserve Banks and FRIT have
included $73.0 million in funding for
major automation and communication initiatives. These initiatives do not include
the automation components of building
or payment systems initiatives discussed
separately. Of the total automation-related
outlays, FRIT projects and acquisitions
account for almost half, or $35.3 million.
Another $80.5 million in capital outlays is budgeted for payment systems,
cash, and Treasury initiatives. Of this total, $50.2 million has been requested to
fund Treasury initiatives, including $16.1
million for the TWAI project and $12.9
million for the electronic-government
projects.

Appendixes

Federal Reserve Budget Process

Appendix A

Federal Reserve Budget Processes
This appendix is an overview of the separate budgets and budgeting processes followed by the Board of Governors and the
Reserve Banks. 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 environments 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 discusses with the appropriate Board oversight committee the issues that arise in
its review. After any adjustments, the
division gives the results to the Staff Planning Group, a small group of senior managers with a Boardwide perspective, for
use in their analysis of the Board’s budget options.
After consulting with a committee of
governors—the 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, clarifies 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
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 published 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 operational 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 generally accepted accounting principles, capitalizes certain assets and depreciates their
value over appropriate periods instead of

Annual Report: Budget Review, 2006

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 adjustments 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 proportion 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.
Items of a unique, one-time nature are
accounted for separately in the extraordinary items account so that expenses
in operations can be readily compared
across years without distortion. As discussed more fully in chapter 2, the
extraordinary items portion of the budget for 2006–07 consists of funds to support planning for two periodic surveys,
one on consumer finances and the other
on small business finances.
The Board’s Office of Inspector General (OIG), in keeping with its statutory
independence, prepares its proposed budget apart from the Board’s budget. The
OIG 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. Each Bank
then develops its own budget using the
business-leader guidance. The budgets
are reviewed at the Board by 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 presented 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 spending. During the budget year, the Banks
must submit proposals for major purchases of assets to the Board for further
review and approval.
The operations and financial performance of the Reserve Banks are monitored throughout the year via a costaccounting system, the Planning and Control System (PACS). Under PACS, the
costs of all Reserve Bank services, both
priced and nonpriced, are grouped by
operational area, and the 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 operating performances of the Reserve Banks.

Priced Services

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 providing the services plus imputed costs,
including the interest on items credited
before actual collection (float), and the
private-sector adjustment factor (PSAF).
To calculate the PSAF, the Federal
Reserve Banks impute the costs that
would have been incurred, such as taxes
that would have been paid, and the profits that would have been earned (return
on equity) had the priced services been
provided by a private business firm. Table
B.1 provides details on projected revenue
from priced services.

Annual Pricing Process
To meet the requirement for the full
recovery of costs over the long run, the

Table B.1
Revenue from Priced Services, 2004–2006
Millions of dollars
Service

2004

2005
2006
(estimated) (budgeted)

Funds transfers and
net settlement .... 57.1
Automated
clearinghouse ..... 75.1
Commercial checks ... 760.1
Book-entry securities
transfers ............. 20.4
Noncash collection ....
1.9

64.9

69.3

84.6
788.2

86.8
734.4

21.0
1.2

22.1
0.0

Total .......................... 914.6

959.9

912.6

Federal Reserve has developed an annual
pricing process that involves projecting
Reserve Bank expenses, volumes, and
revenues, as well as the PSAF and net
income on clearing balances, for each
major service category.
Fees for Federal Reserve services must
be approved by the product director for
the respective service, by the Reserve
Banks’ Financial Services Policy Committee, and ultimately by the Board of
Governors.1
The cost of float is projected by
applying the federal funds rate to an estimate of the level of float to be generated
in the coming year. Beginning in 2006,
the PSAF targeted return on equity (ROE)
capital is based on a simple capital asset
pricing model using data from the equity
market as a whole.2 The ROE is applied
to the level of priced-services equity that
is imputed to finance the assets the Federal Reserve expects to use in providing
priced services in the coming year. Estimates of income taxes are based on the
tax rates derived using the financial data
of the fifty largest U.S. bank holding
companies.
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
1. The product directors are the first vice presidents at selected Reserve Banks with responsibility 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.
2. Prior to 2006, the ROE was based on the
average return on equity results of three economic
models that used bank holding company data.

Annual Report: Budget Review, 2006

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.
Investment income is imputed and netted with related direct costs associated
with clearing balances to estimate net
income on clearing balances.

Currency Budget

Appendix C

Currency Budget
Federal Reserve Banks issue new and fit
currency to the public through depository
institutions and destroy currency already
in circulation as it becomes unfit or when
a new design is issued. Each year, under
authority delegated by the Board, the
director of the Division of Reserve Bank
Operations and Payment Systems orders
new currency from the U.S. Department
of Treasury’s Bureau of Engraving and
Printing (BEP). Upon reviewing the
order, the BEP establishes billing rates
for new currency, which the Board staff
uses to prepare the annual budget for
new currency. Once the Board approves
the new currency budget, it assesses
each Federal Reserve Bank through an
accounting procedure similar to that used
in assessing the Banks for the Board’s
operating expenses.
Estimated currency expenditures for
2005 total $478.8 million, which is $54.1
million, or 10.2 percent, less than budgeted (table C.1). The underrun is due
primarily to lower-than-expected printing
costs, but also to lower transportation
costs. Budgeted currency expenditures
for 2006 total $494.4 million, which is
$15.5 million, or 3.2 percent, more than
estimated 2005 expenses (chart C.1).
Increases in the overall BEP billing rates

Chart C.1
Federal Reserve Budget for New Currency,
1996–2006
Millions of dollars

500
400
300
200
100
1996

1999

2002

2005

NOTE: For 2005, estimated; for 2006, budgeted.

are the primary drivers of the year-to-year
budget increase.

Printing of Federal Reserve Notes
The Board ordered 8.5 billion new notes
for the calendar year 2006 budget. The
budget for printing the Board’s order is
$471.2 million, or 95.3 percent of the
total 2006 new currency budget. For January through September 2006 (the portion
of the federal government’s 2006 fiscal
year that falls within the 2006 calendar
year), the BEP will produce 6.4 billion

Table C.1
Federal Reserve Budget for New Currency, 2005 and 2006
Thousands of dollars, except as noted
Item

2005
(estimated)

2006
(budgeted)

Percent
change

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

458,868
12,932
3,522
3,516

471,152
16,282
3,326
3,600

2.7
25.9
-5.6
2.4

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

478,837

494,360

3.2

Annual Report: Budget Review, 2006

Table C.2
Projected Federal Reserve Costs of Printing New Notes, by Type of Note, 2006
Type of currency

Number of
notes
(millions)

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

4,833.3

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

Cost per
thousand notes
(dollars)

Total cost
(thousands of
dollars)

57.2

42.97

207,686

860.5
775.8
1,983.1

10.2
9.1
23.5

57.27
70.10
80.58
55.74

49,280
54,386
159,800

8,452.7

100.0

notes; for October through December
2006 (the remainder of the 2006 calendar year), it will produce another 2.1 billion notes.
The 2006 billing rates reflect four
types of currency produced: unthreaded
($1s and $2s); New Currency Design
(NCD) without color-shifting ink ($5s);
NCD with color-shifting ink ($100s); and
Series-2004 with new and enhanced
security features, including color-shifting
ink ($10s, $20s, and $50s) (table C.2).1
During 2006, 19.3 percent of the notes
produced will be NCD notes, 23.5 percent will be Series-2004, and the remaining 57.2 percent will be unthreaded. The
weighted average price that the Board
will pay the BEP for producing notes in
2006 is $55.74 per thousand.

Percentage of
total notes

471,152

budget is $16.3 million, which is $3.4
million, or 25.9 percent, more than the
Board estimated for 2005. The 2006 budget for new currency shipments from the
BEP is $12.5 million, which is 31.6 percent more than estimated 2005 expenses
because of a reinstatement of postponed
Series-2004 $10 note shipments, although
expected growth in armored carrier costs
also has some effect. The 2006 budget
for currency shipments among Reserve
Banks is $3.8 million, which is 10.3 percent more than estimated 2005 expenses.
These shipments include moving currency 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 consists of funds for shipping new currency
from the BEP to the Reserve Banks and
new and fit currency among the Reserve
Banks. The 2006 currency transportation

1. For NCD notes greater than the $5 denomination, 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 2006 budget for the counterfeitdeterrence program is $3.3 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 counterfeiting, and membership to the Reprographic Research Center, a state-of-theart adversarial testing facility to test bank
note designs and counterfeit-deterrence
features.

Currency Budget

Treasury’s Office of Currency
Standards
The 2006 budget to reimburse the Treasury Department for expenses relating to
its Office of Currency Standards (OCS)
is $3.6 million. Because destroying unfit
currency is a delegated function from the
Treasury Department, the OCS develops
Reserve Bank standards for the cancellation, destruction, and accountability of
unfit currency and processes claims for
the redemption of damaged or mutilated
currency.

Board Expenses and Employment

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,
2004–2007
Thousands of dollars, except as noted
Average annual
percent change
Division, office, or special account

2004–05
(budgeted)

2004–05
(estimated)

2006–07
(budgeted)

2004–05
2006–07
estimated
budgeted
compared with compared with
2004–05
2004–05
budgeted
budgeted

Board Members .....................................
Secretary ................................................
Staff Director for Management .............
Research and Statistics .........................
International Finance .............................
Monetary Affairs ...................................
Banking Supervision and Regulation ....
Consumer and Community Affairs .......
Legal ......................................................
Reserve Bank Operations
and Payment Systems1 ..................
Information Technology ........................
Management ..........................................
Special projects .....................................
Extraordinary items ...............................
IRM income account2 ............................

25,066
11,521
16,105
75,803
28,163
23,056
84,382
24,300
23,846

25,188
11,602
16,256
75,830
28,548
24,070
84,074
24,478
23,846

26,399
12,403
16,783
82,690
32,006
28,441
99,431
29,515
26,083

0.2
0.4
0.5
0.0
0.7
2.2
–0.2
0.4
0.0

2.6
3.8
2.1
4.4
6.6
11.1
8.6
10.2
4.6

38,100
90,832
106,200
20,504
10,000
(39,306)

38,292
87,817
106,812
19,598
10,000
(38,602)

51,357
91,155
122,214
21,781
9,000
(39,784)

0.3
–1.7
0.3
–2.2
0.0
–0.9

16.1
0.2
7.3
3.1
–5.1
0.6

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

538,570

537,809

609,475

–0.1

6.4

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

8,533

10,237

0.0

9.5

1. Part of the increase is attributable to the transfer of
the Reserve Bank audit contract.

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

Annual Report: Budget Review, 2006

Table D.2
Positions Authorized at the Board of Governors, by Division, Office, or Special Account,
2004–2007
Division, office, or special account

2004–05
(authorized)

2006–07
(budgeted)

Change

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

77
50
45
275
116
74
254
89
80

78
50
45
275
116
75
254
94
80

1
...
...
...
...
1
...
5
...

139
274
427
31

139
274
438
31

...
...
11
...

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

1,931

1,949

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

...

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

1,958

1,976

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 Community Reinvestment Act.

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

Board Expenses and Employment 37
Table D.3
Operating Expenses of the Board of Governors, by Account Classification,
2004–2007
Thousands of dollars, except as noted
Average annual
percent change
Account classification

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

2004–05
(budgeted)

2004–05
(estimated)

2006–07
(budgeted)

331,650
29,026
28,605
389,281

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

380,220
35,725
31,352
447,298

–0.3
2.7
0.7
0.0

7.1
10.9
4.7
7.2

13,808
1,176
10,576
2,963
1,381
2,292
14,539
9,212
748
2,005
5,916
5,861
3,569

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

15,703
976
10,799
2,691
1,230
2,315
14,643
7,517
1,199
1,989
7,800
4,646
2,475

–0.8
0.0
0.0
0.0
0.0
0.0
0.4
–2.1
0.0
0.0
0.0
1.1
–15.0

6.6
–8.9
1.1
–4.7
–5.6
0.5
0.4
–9.7
26.6
–0.4
14.8
–11.0
–16.7

2006–07
2004–05
budgeted
estimated
compared with compared with
2004–05
2004–05
budgeted
budgeted

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

896
51,437

896
50,331

1,700
62,848

...
–1.1

37.8
10.5

4,405
1,285
26,544
(9,323)
149,289

4,405
1,285
26,544
(7,354)
148,820

4,834
1,338
28,826
(11,353)
162,177

0.0
0.0
0.0
–11.2
–0.2

4.8
2.0
4.2
10.3
4.2

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

528,570

537,809

609,475

–0.1

6.4

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

8,533

10,237

0.0

9.5

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

. . . Not applicable.

Bank Expenses and Employment

Appendix E

Expenses and Employment
at the Federal Reserve Banks
Table E.1
Operating Expenses of the Federal Reserve Banks, by District, 2005 and 2006
Thousands of dollars except as noted
Percent change
District

2005
(budgeted)

2005
(estimated)

2006
(budgeted)

2005 estimated
compared with
2005 budgeted

2006 budgeted
compared with
2005 estimated

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

155,553
500,686
128,516
184,225
192,960
296,587
254,035
215,553
144,866
159,879
170,815
259,450

149,708
506,894
126,321
183,197
196,920
296,490
246,805
207,336
142,969
164,771
177,745
253,004

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

–3.8
1.2
–1.7
–0.6
2.1
0.0
–2.8
–3.8
–1.3
3.1
4.1
–2.5

4.4
4.9
8.4
5.8
6.0
13.4
–0.3
6.2
4.2
–0.4
3.0
2.8

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

2,663,125

2,652,162

2,786,229

–0.4

5.1

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 support and allocations for overhead.

Annual Report: Budget Review, 2006

Table E.2
Employment at the Federal Reserve Banks, by District, and at FRIT and OEB,
2005 and 2006
Average number of personnel except as noted
Amount change
2005
(estimated)

2006
(budgeted)

District

2005
(budgeted)

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

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

1,055
2,967
1,085
1,553
1,821
2,070
1,631
1,160
1,283
1,431
1,329
1,942

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

–43
20
–25
10
–11
28
55
37
–15
1
85
18

–15
11
–7
44
25
–37
–98
–10
4
–87
–14
–76

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

19,168

19,328

19,069

160

–259

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

759
40

765
40

757
43

6
0

–8
3

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

19,967

20,133

19,869

166

–264

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,

2005 estimated 2006 budgeted
compared with compared with
2005 budgeted 2005 estimated

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

Table E.3
Operating Expenses of the Federal Reserve Banks, FRIT, and OEB,
by Operational Area, 2005 and 2006
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 ..................................................

2005
(budgeted)

2005
(estimated)

2006
(budgeted)

291,841

296,908

322,242

1.7

8.5

403,619

379,186

409,546

–6.1

8.0

672,802
519,391

679,397
519,407

708,310
550,446

1.0
0.0

4.3
6.0

775,471

777,264

795,755

0.2

2.4

2,663,125

2,652,162

2,786,299

–0.4

5.1

2005 estimated 2006 budgeted
compared with compared with
2005 budgeted 2005 estimated

Bank Expenses and Employment

Table E.4
Employment at the Federal Reserve Banks, FRIT, and OEB,
by Operational Area, 2005 and 2006
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 ..................................................

2005
(budgeted)

2005
(estimated)

2006
(budgeted)

2005 estimated 2006 budgeted
compared with compared with
2005 budgeted 2005 estimated

878

883

935

1,303

1,295

1,304

–8

2,799
2,592

2,729
2,561

2,728
2,663

–70
–31

–1
101

3,114
9,281

3,328
9,335

2,987
9,251

214
54

–341
–84

19,967

20,133

19,869

166

–264

Table E.5
Expenses of the Federal Reserve Banks for Salaries of Officers and Employees,
by District, 2005 and 2006
Thousands of dollars except as noted
Percent change
2005
(budgeted)

2005
(estimated)

2006
(budgeted)

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

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

70,421
250,761
59,866
76,950
102,194
117,083
102,010
64,328
66,467
82,239
69,642
126,955

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

–4.3
–1.0
–2.6
0.2
–1.6
3.0
–0.8
0.9
–2.0
–0.9
4.5
–1.8

4.6
6.1
5.3
6.2
7.0
2.1
–0.5
5.6
4.4
0.8
5.1
2.9

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

1,195,911

1,188,916

1,238,721

–0.6

4.2

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

60,438
3,970

61,128
4,043

63,745
4,520

1.1
1.8

4.3
11.8

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

1,260,318

1,254,087

1,306,985

–0.5

4.2

District

2005 estimated 2006 budgeted
compared with compared with
2005 budgeted 2005 estimated

Annual Report: Budget Review, 2006

Table E.6
Capital Outlays of the Federal Reserve Banks, by District, and of FRIT and OEB,
2005 and 2006
Thousands of dollars except as noted
Percent change
District

2005
(budgeted)

2005
(estimated)

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

33,676
48,588
12,489
31,610
29,444
10,815
97,524
31,910
4,047
34,430
40,989
26,331

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

52.2
–18.3
22.1
–8.6
–28.6
13.6
36.1
25.3
–22.1
21.5
23.8
–31.7

–26.2
43.5
67.9
–10.9
99.1
60.3
–78.6
33.9
18.2
117.1
–75.9
89.0

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

379,484

401,852

422,392

5.9

5.1

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

51,010
...

39,278
160

51,771
...

–23.0
...

31.8
...

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

430,494

441,290

474,163

2.5

7.4

2006
(budgeted)

2005 estimated 2006 budgeted
compared with compared with
2005 budgeted 2005 estimated

. . . Not applicable.

Table E.7
Capital Outlays of the Federal Reserve Banks, FRIT, and OEB, by Category,
2005 and 2006
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 ..................................................

2005
(budgeted)

2005
(estimated)

2006
(budgeted)

245,245
35,431
61,704

251,762
30,959
72,603

252,029
64,156
72,966

2.7
–12.6
17.7

0.1
107.2
0.5

83,516
4,599

80,387
5,578

80,538
4,472

–3.7
21.3

0.2
–19.8

430,494

441,290

474,163

2.5

–7.4

1. Includes other equipment purchases.

2005 estimated 2006 budgeted
compared with compared with
2005 budgeted 2005 estimated

Maps of the
Federal Reserve System

Annual Report: Budget Review, 2006

The Federal Reserve System

9
2

MINNEAPOLIS

12
SAN FRANCISCO

CHICAGO

CLEVELAND

KANSAS CITY

NEWYORK
HILADELPHIA

RICHMOND

ST. LOUIS

BOSTON

TLANTA

11 D

ALLAS

ALASKA
HAWAII

LEGEND
Both pages
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

Facing page

•

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 System as of year-end 2005.

Maps of the Federal Reserve System

1−A

2−B

4−D

3−C

5−E

Pittsburgh

Baltimore

NY
PA
NJ

WV
NH

Buffalo

Cincinnati

Charlotte

KY
SC

BOSTON

NEW YORK

CLEVELAND

PHILADELPHIA
7−G

6−F

RICHMOND
8−H

Nashville

Birmingham

MI
IL

Detroit

Louisville

TN
LA

Jacksonville

New Orleans

Memphis

Little
Rock

Miami

9−I

ST. LOUIS

CHICAGO

ATLANTA
MT
ND

Helena
MI
WI
SD

MINNEAPOLIS
12−L

10−J
WY

Omaha

Denver

ALASKA

Seattle

Oklahoma City
Portland
OK
OR

KANSAS CITY

ID
CA
NV

11−K

Salt Lake City

El Paso

Houston
Los Angeles
San Antonio
HAWAII
AZ

DALLAS

SAN FRANCISCO

0406

Full text of Annual Report : Budget Review : 2006

FRASER