Full text of Annual Report : Budget Review : 2008

View original document

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

ANNUAL REPORT OF THE FEDERAL RESERVE BOARD: BUDGET REVIEW

Board of Governors of the Federal Reserve System
2008

2008

Board of Governors of the Federal Reserve System

2008

May 2008
This publication is available from Publications Fulfillment, Board of Governors of the
Federal Reserve System, Washington, DC 20551. It is also available on the Board’s website,
www.federalreserve.gov.

Contents
Introduction

1 Summary of 2007 Income and Expenditures
1 Operational Areas

The Budgets
7
8
8
9

Chapter 1
FEDERAL RESERVE SYSTEM
2008 System Budget Initiatives
Trends in Expenses and Employment
2008 Capital Budgets

Chapter 2
11 BOARD OF GOVERNORS
11 2008–09 Budget
12 2006–07 Budget Performance
15
16
17
18
19
19
20

Chapter 3
FEDERAL RESERVE BANKS
2007 Budget Performance
Initiatives Affecting the 2008 Budget
Five-Year Trend in Reserve Bank Expenses
2008 Personnel Expenses
Risks in the 2008 Budget
2008 Capital Plan

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

Appendix C
CURRENCY BUDGET
Printing of Federal Reserve Notes
Currency Transportation
Counterfeit-Deterrence Research
Reimbursement to the Treasury’s Office of Compliance

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

Introduction 1

Introduction
The Federal Reserve System—the nation’s
central bank—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.
The duties of the Federal Reserve fall
into four general areas: (1) conducting
the nation’s monetary policy by influencing the monetary and credit conditions
in the economy in pursuit of maximum
employment, stable prices, and moderate
long-term interest rates; (2) supervising
and regulating banking institutions to
ensure the safety and soundness of the
nation’s banking and financial system and
to protect the credit rights of consumers;
(3) maintaining the stability of the financial system and containing systemic risk
that may arise in financial markets; and
(4) providing financial services to depository institutions, the U.S. government,
and foreign official institutions.
The Federal Reserve System plays
a major role in the nation’s payment
systems. The Reserve Banks distribute
currency and coin; process Fedwire, automated clearinghouse, and securities transfers; and collect checks. In addition, the
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 2007 Income
and Expenditures
In carrying out its responsibilities in
2007, the Federal Reserve System incurred
$1.8 billion in net operating expenses.
Total spending of $3.3 billion was offset
by $1.5 billion in revenue from priced
services, claims for reimbursement,
and other income. Total 2007 operating
expenses were $20.9 million, or 0.6 percent, more than the amount budgeted for
the year (table I.1).1
The major source of Reserve Bank
income is earnings from the portfolio
of U.S. government securities in the
System Open Market Account, totaling
$40.3 billion in 2007. Earnings in excess
of expenses, dividends, and surplus are
transferred to the U.S. Treasury—in
2007 a total of $34.6 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.)

Operational Areas
In 2007 the Federal Reserve System
accounted for costs using the follow1. 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, 2008

Table I.1
Operating Expenses of the Federal Reserve System, 2007
Millions of dollars, except as noted
Variance

Entity

Budgeted

Actual

Amount

Percent

Reserve Banks ..............................................................
Board of Governors.......................................................

2,953.3
314.8

2,983.5
305.5

30.2
–9.3

1.0
–3.0

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

3,268.1

3,289.0

20.9

0.6

ing 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.

reserve requirements, setting the discount
rate (which affects the cost of borrowing),
and conducting open market operations.
Staff members also conduct longer-run
economic studies on regional, national,
and international issues.

Monetary and Economic Policy

Supervision and Regulation
of Financial Institutions

The monetary and economic policy operational area encompasses Federal Reserve
actions to influence the availability and
cost of money and credit in the nation’s
economy. In 2007, the Federal Open
Market Committee held eight regularly
scheduled meetings and adjusted the federal funds rate three times.
A vast amount of banking and financial
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
Banks use these data, along with information collected by other public and
private institutions, to assess the state
of the economy and the relationships
between the financial markets and economic activity. Staff members provide
background information for the Board of
Governors and for each meeting of the
FOMC by preparing detailed economic
and financial analyses and projections for
the domestic economy and international
markets. The Board and the FOMC use
these analyses and projections in setting

The Federal Reserve System plays a major
role in the supervision and regulation of
banks and bank holding companies.
The Board of Governors adopts regulations to carry out statutory directives
and establishes System supervisory and
regulatory policies. The Reserve Banks
conduct on-site examinations and inspections of state member banks and bank
holding companies; review applications
for mergers, acquisitions, and changes
in control from banks and bank holding
companies; and take formal supervisory
actions. In 2007, the Federal Reserve conducted 479 examinations of state member
banks (some of them jointly with state
agencies), 476 inspections of large bank
holding companies, and 3,007 inspections of small, noncomplex bank holding
companies; it acted on 1,365 proposals,
representing 2,661 individual applications
involving bank holding company formations and acquisitions, bank mergers, and
other transactions.
The Board also enforces compliance
by state member banks and certain for-

Introduction 3

eign banking organizations with federal
laws protecting consumers in their use
of credit and deposit products. Between
July 1, 2006, and June 30, 2007, the System conducted 324 consumer compliance
examinations: 312 covering state member
banks and 12 covering foreign banking
organizations. Also during that period,
the System conducted 271 Community
Reinvestment Act examinations.
The Board’s supervisory responsibilities 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
continuous oversight of the banking
industry to ensure the overall safety and
soundness of the financial system. This
broader responsibility is reflected in the
System’s presence in financial markets,
through open market operations, and in
its role as lender of last resort.

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. The Reserve
Banks also receive deposits of currency
and coin from depository institutions;
identify suspect currency, which they
forward to the U.S. Secret Service; and
destroy currency that is unfit for circulation. In 2007, the Reserve Banks received
approximately $696.2 billion in currency
and $6.1 billion in coin from depository
institutions, distributed approximately
$704.1 billion in currency and $7.5 billion
in coin, and destroyed $104.1 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 2007, the Banks
collected approximately 9.9 billion commercial checks, with a total value of about
$15.7 trillion. The Banks’ automated
clearinghouse (ACH) service allows
depository institutions to send or receive
credit and debit payment transactions. The
ACH service is typically used for check
payments, such as payroll, dividend,
mortgage, and bill payments. In 2007, the
Reserve Banks processed approximately
10.4 billion ACH transactions, valued
at about $18.3 trillion. Approximately
9.9 percent of the transactions were for
the federal government; the rest were for
commercial establishments.
The Reserve Banks’ Fedwire Funds
Service allows participants in the service
to use their reserve or clearing balances
at the Reserve Banks to transfer funds
to other participants. In 2007, the Banks
processed approximately 135 million
Fedwire funds transfers, valued at more
than $670 trillion.
The Reserve Banks’ National Settlement Service allows participants in
private clearing arrangements to settle
transactions through their Federal Reserve
accounts. Approximately 54 local and
national private arrangements, primarily check clearinghouse associations but
also other types of arrangements, use the
National Settlement Service. In 2007, the
Banks processed over 504,000 settlement
entries for these arrangements.
The Reserve Banks’Fedwire Securities
Service provides securities services to
participants, including the settlement of
book-entry transfers of securities issued
by the U.S. Treasury, federal government agencies, government-sponsored
enterprises, and certain international
organizations. In 2007, participants originated approximately 25 million transfers,
valued at about $435 trillion.

Annual Report: Budget Review, 2008

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. government and other fiscal principals. These
services relate to securities custody and
transfer, payments, deposits, and cus tomer support. The federal government
and other fiscal principals reimburse the
Banks for the cost of providing these services. In 2007, the Reserve Banks sought
reimbursement of $458.2 million. Reimbursement was received or is expected for
all of the expenses incurred.2
The Reserve Banks issue, service, and
redeem marketable Treasury securities
and savings bonds and process secondarymarket Fedwire securities transfers. In
2007, the Banks processed 104,000 commercial tenders for Treasury securities
and printed and mailed nearly 25 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.
2. The Reserve Banks are required by the Federal
Reserve Act to serve as fiscal agents and depositories
of the United States. By statute, the Department of
the Treasury is permitted, but not required, to pay
for these services.

The Reserve Banks collect and disburse
funds on behalf of the federal government. They 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
2007, the Banks continued to assist the
Treasury in its efforts to receive and make
payments electronically. For example,
they operated the Pay.gov Internet portal,
which enables the public to make payments to the Treasury and other federal
government agencies over the Internet.
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 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 programs.
At the System level, the expenses for
these activities are considered overhead
and are therefore allocated across the other operational areas. At the Board level,
these expenses are not treated as overhead
nor allocated to other operational areas.
■

The Budgets

Federal Reserve System 7

Chapter 1

Federal Reserve System
Total operating expenses for the Federal Reserve System for 2008 are budgeted at $3,427.1 million, an increase of
4.2 percent from 2007 expenses. Of this
total, $3,067.0 million is for the Reserve
Banks and $360.1 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
amount to $896.2 million, or 26 percent
of budgeted operating expenses, and total
recoveries (revenue from priced services
combined with other expected income and
claims for reimbursement) to amount to
40 percent of budgeted operating expenses. 2 Deducting total recoveries from
1. The Board of Governors budgets on a twoyear cycle; in this chapter, 2008 values shown for the
System and the Board reflect the estimated first-year
effect of the Board’s 2008–09 budget.
2. Other income comes from services provided
on behalf of the U.S. Treasury that are paid for by the
depository institutions using the services (including
the transfer of funds between depository institutions

budgeted expenses results in 2008 net
System operating expenses 13.1 percent
higher than 2007 net System operating
expenses.
Not included in the budget for operations is the cost of supplying currency,
budgeted at $602.4 million for 2008, an
increase of 4.6 percent from the 2007 cost
of $576.0 million.3 Including the cost of
supplying currency, the distribution of
budgeted expenses is similar to that in
previous years, with the Reserve Banks’
expenses accounting for 76 percent of the
total, currency expenses accounting for
and the Treasury). Claims for reimbursement refers
to the 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.
3. The Federal Reserve pays for the printing of
new currency at the Bureau of Engraving and Printing. That cost is not included in Federal Reserve
System 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, 2006–2008
Millions of dollars, except as noted
Percent change

Item

2006
(actual)

2007
(actual)

2008
(budgeted)

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

3,071.9

3,289.0

3,427.1

7.1

4.2

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

1,031.2
1.2
426.4

1,012.3
1.4
458.2

896.2
1.6
474.1

–1.8
18.8
7.5

–11.5
12.7
3.4

equaLs
Net System operating expenses .........

1,613.2

1,817.1

2,055.2

12.6

13.1

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

2006 to 2007 2007 to 2008

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 those
agencies.

Annual Report: Budget Review, 2008

Table 1.2
Expenses of the Federal Reserve System for Operations and Currency, 2006–2008
Millions of dollars, except as noted
Percent change

2006
(actual)

2007
(actual)

2008
(budgeted)

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

2,776.0
1,814.1
961.9

2,983.5
2,013.7
969.8

3,067.0
2,062.2
1,004.8

7.5
11.0
0.8

2.8
2.4
3.6

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

295.9
218.1
77.8

305.5
228.7
76.8

360.1
260.6
99.5

3.2
4.9
–1.3

17.9
13.9
29.6

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

3,071.9
2,032.2
1,039.7

3,289.0
2,242.4
1,046.6

3,427.1
2,322.8
1,104.3

7.1
10.3
0.7

4.2
3.6
5.5

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

488.7

576.0

602.4

17.9

4.6

Item

2006 to 2007

2007 to 2008

Note: Operating expenses exclude capital outlays.
Components may not sum to totals and may not yield
percentages shown because of rounding.
1. For detailed information on Reserve Bank expenses,
see chapter 3.

2. Excludes extraordinary items and expenses of the
Office of Inspector General. For more information, see
chapter 2.
3. For information on currency expenses, see appendix C.

15 percent, and Board expenses accounting for the remainder (chart 1.1).
System employment for 2008 is budgeted at 21,199, a decrease of 376 from
the 2007 level, largely because of planned
staff reductions at the Reserve Banks.

operating expenses. The Reserve Banks’
budgets are funding increases in several
functional areas: monetary policy, public
programs, cash services, and supervision
and regulation. These increases are being
offset by reductions in check operations.
The major factors affecting the Banks’
2008 budgets are described in some detail
in chapter 3.

2008 System Budget Initiatives
Reserve Bank initiatives are having a
large influence on total 2008 System
Chart 1.1
Distribution of Budgeted Expenses for the
Federal Reserve System, 2008
Currency, 15%

Board of
Governors, 9%

Reserve Banks, 76%

Trends in
Expenses and Employment
From the actual 1999 level to the budgeted
2008 amount, the operating expenses
of the Federal Reserve System have
increased an average of 4.1 percent a
year (1.6 percent a year when adjusted
for inflation) (chart 1.2). In comparison,
nondefense discretionary spending by the
federal government has increased an average of 6.2 percent a year (chart 1.3). Over
the same ten-year period, Federal Reserve
System employment has decreased 3,859
(chart 1.4).

Federal Reserve System 9
Chart 1.2
Operating Expenses of the
Federal Reserve System, 1999–2008

Chart 1.4
Employment in the
Federal Reserve System, 1999–2008

Excludes special projects

Includes special projects
Billions of dollars

Current dollars

Thousands of persons

3.0

2000 dollars1

2.0
1.0

2000

2002

2004

2006

2000

2008

The primary factors in spending
restraint and the substantial staffing
decrease over the past ten years have been
the Reserve Banks’ restructuring in the
check-processing function and improved
efficiency in the support and overhead
functions. Over the period, costs in the
Chart 1.3
Cumulative Change in Federal Reserve
System Expenses and Federal Government
Expenses, 1999–2008
Includes special projects
Percent

Federal government1

40
Federal Reserve
2002

2004

2006

2002

2004

2006

2008

Note: For 2008, budgeted.

Note: For 2008, budgeted.
1. Calculated with the GDP price deflator.

2000

2008

Note: For 2008, budgeted.
1. Discretionary spending less expenditures on defense.
Source: Budget of the United States Government, Fiscal
Year 2008: Historical Tables, Table 8.1. Outlays by Budget
Enforcement Act Category, 1962–2012,

check area have decreased 0.5 percent
and staffing for that function has declined
10.2 percent. Similarly, local support and
overhead costs have increased 2.1 percent
and staffing for that function has declined
4.0 percent.

2008 Capital Budgets
The 2008 capital budgets for the Reserve
Banks and the Board total $544.8 million—$534.6 million for the Reserve
Banks and Federal Reserve Information
Technology (FRIT) and $10.2 million
for the Board. As in previous years, the
2008 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 operational
efficiencies and services to bank customers and on the provision of a safe,
high-quality work environment. More
information on the Board and Reserve
Bank capital budgets is given in chapters
2 and 3, respectively.
■

Board of Governors

Chapter 2

Board of Governors
The Board of Governors operates under a
two-year budget. The budget for 2008–09
was approved in December 2007.

2008–09 Budget
Board of Governors
The Board’s approved operating budget
for 2008–09 totals $706.3 million—
$526.6 million (75 percent) for salaries
and benefits and the remaining $179.7 million for goods and services (table 2.1; also
see appendix D). The budget reflects
$10.2 million in savings from discontinued activities. The Board’s approved
capital budget for 2008–09 is $47.8 million. The funds are to be used primarily
to replace or upgrade legacy computing
systems, to renovate aging facilities, and
to expand office space to accommodate
workforce growth.

Office of Inspector General
In keeping with its statutory independence, the Office of Inspector General
(OIG) prepares its proposed budget apart
from the Board’s budget and presents it
directly to the Chairman of the Board of
Governors for Board members’ consideration. The OIG’s 2008–09 operating
budget is $12.7 million.

Authorized Positions
To meet increasing workload demands at
the Board, the number of authorized positions was increased by 28 for 2008–09,
bringing total authorized positions to
2,053 (table 2.2). The number of authorized positions for the OIG was increased
by 1, bringing the total to 37.

Table 2.1
Operating Expenses and Capital Expenditures, 2004–2009
Millions of dollars
Operational area or
Office of Inspector General

2004–05
(budgeted)

2004–05
(actual)

2006–07
(budgeted)

2006–07
(actual)

2008–09
(budgeted)

Monetary and economic policy ..............
Supervisory, regulatory, and legal
services ................................................
Federal Reserve System policy
direction...............................................
Support and security services ................
Extraordinary items ................................

129.5

143.1

137.9

169.1

173.2

172.0

206.4

200.5

232.0

52.6
171.9
10.0

51.6
172.1
9.4

55.6
195.4
9.0

55.9
198.8
8.3

66.3
236.9
2.0

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

537.2

534.6

609.5

601.4

706.3

Total, capital ..........................................

34.0

31.3

31.4

24.7

47.8

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

8.5

8.1

10.2

9.5

12.7

Note: Components may not sum to totals because of rounding.

Annual Report: Budget Review, 2008

Table 2.2
Positions Authorized at the Board of Governors, 2004–2009
Operational area or
Office of Inspector General

2004–05
(initial)

2004–05
(ending)

2006–07
(initial)

2006–07
(ending)

2008–09
(current1)

459

465

466

467

483

540

562

567

577

578

172
723r
...

172
761r
...

173
770
...

176
805
...

179
813
...

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

1,894r

1,960r

1,976

2,025

2,053

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

Monetary and economic policy .............
Supervisory, regulatory, and legal
services ...............................................
Federal Reserve System policy
direction..............................................
Support and security services2 ..............
Extraordinary items ...............................

1. As of the end of the first quarter, 2008.
2. Includes youth positions and positions that support
the Federal Financial Institutions Examination Council for
processing data collected under the Home Mortgage Disclosure Act and the Community Reinvestment Act.

Areas of Risk
Despite careful planning, future developments could necessitate resources beyond
those currently approved. Examples of
such developments include
• significant changes in or shocks to
the economy or financial system
that create a material increase in
workload,
• heavier workload required by laws or
decisions to expand or modify central
bank operations,
• pressure in key areas requiring additional salary or benefit packages in
order for the Board to remain competitive, and
• an unforeseen external event requiring additional security or contingency
enhancements.

2006-07 Budget Performance
Board of Governors
The Board’s 2006–07 budget provided
$609.5 million for operations and $31.4

r Revised slightly.
. . . Not applicable.

million for capital. Included in the
operations budget was $9.0 million for
two extraordinary items—the Survey of
Small Business Finances and the Survey
of Consumer Finances, both administered
by the Board. Actual operating expenses
for the two-year period totaled $601.4
million, or 98.7 percent of the amount
budgeted. Personnel-related expenses
totaled $446.8 million, or 99.9 percent
of the $447.3 million budgeted. Expenses
for goods and services totaled $154.6 million, or 95.3 percent of the $162.2 million
budgeted; the underage was due to lowerthan-expected expenses for software and
contractual professional services. Capital
expenditures for 2006–07 totaled $24.7
million, or 78.7 percent of the $31.4 million budgeted; expenditures were lower
than expected because of changes to the
timing of several capital projects.

Office of Inspector General
OIG expenses for 2006–07 totaled $9.5
million, compared with a budgeted
amount of $10.2 million.

Board of Governors

Authorized Positions
Over the 2006–07 budget period, the
number of authorized positions at the
Board increased by 49, bringing the total
at the end of 2007 to 2,025. The additional
positions were necessitated by increases
in staff workload, including work related
to the Board’s compliance with the Fed-

eral Information Security Management
Act and other federal mandates and its
voluntary compliance with the principles
of the Sarbanes-Oxley Act. The number
of authorized positions at the OIG
remained unchanged, at 36, over the twoyear period.
■

Federal Reserve Banks 15

Chapter 3

Federal Reserve Banks
The 2008 operating budgets of the
twelve Federal Reserve Banks total
$3,067.0 million—$83.5 million, or
2.8 percent, above 2007 expenses (table
3.1; also see appendix E).1 The increase
is being driven by growth in several
central bank functional areas, specifically, monetary policy, public programs,
supervision and regulation, and cash
operations. Largely offsetting the increase
are lower costs in the priced-services area
associated with the ongoing decline in the
volume of paper checks processed.
Nearly half of the Banks’ budgeted
2008 operating expenses are expected to
be offset by revenue from priced services
(29 percent) and reimbursements for ser1. Total includes expenses budgeted by Federal
Reserve Information Technology (FRIT) and the
Office of Employee Benefits (OEB), which are
chargeable to the Reserve Banks.

vices provided to the Treasury and other
agencies (15 percent).2 After taking this
and other anticipated income into account,
net expenses are expected to increase
$183.4 million, or 12.1 percent, over
2007 expenses. Priced-services revenue
is expected to be lower in 2008 than in
2007, mainly because of declining paper
check volume; and reimbursable claims
are expected to increase only slightly,
reflecting an overall effort by the Treasury
and the Reserve Banks to contain costs.
Employment at the Reserve Banks,
FRIT, and OEB in 2008 is budgeted at
19,255 ANP, a decrease of 280 ANP, or
1.4 percent, from the actual 2007 level

2. Reimbursable claims include the costs of
fiscal agency and depository services provided
to the U.S. Treasury, other government agencies,
and other fiscal principals that are billed to and
reimbursed by those agencies.

Table 3.1
Operating Expenses of the Federal Reserve Banks, Net of Receipts and Claims for
Reimbursement, 2007 and 2008
Millions of dollars, except as noted
Change

Item

2007
(actual)

2008
(budgeted)

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

2,983.5

3,067.0

83.5

2.8

Less
Revenue from priced services......................................
Other income................................................................
Claims for reimbursement2 ..........................................

1,012.3
1.4
458.2

896.2
1.6
474.1

–116.0
0.2
15.8

–11.5
12.7
3.5

equaLs
Net operating expenses ..............................................

1,511.6

1,695.1

183.4

12.1

Note: Excludes capital outlays. Includes expenses
budgeted by FRIT and OEB, which are chargeable to the
Reserve Banks. Components may not sum to totals and may
not yield percentages shown because of rounding.
1. Reflects all redistributions for support and allocations for overhead.

Amount

Percent

2. 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, 2008

Table 3.2
Employment at the Federal Reserve Banks, FRIT, and OEB, 2007 and 2008
Average number of personnel, except as noted
Change

Entity

2007
(actual)

2008
(budgeted)

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

18,673
821
41

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

19,535

Note: Components may not sum to totals and may not
yield percentages shown because of rounding. See text

footnote 3 for definition of average number of personnel.

(table 3.2).3 The decrease continues a
trend that began in the late 1990s and
brings the workforce to the lowest level in
the past thirty years. The 2008 reduction
is due largely to the declining volume of
paper checks and to efficiency gains in
currency processing.

uted $19.3 million to the overrun. And
needed resources for national adjustments
and check automation services added
$8.7 million. Partly offsetting the greater
costs were lower-than-anticipated expenditures in various other check functions
totaling approximately $13.0 million.
The Reserve Banks fully recovered check
costs through revenue in 2007.
Expenses for monetary policy and public programs were also over budget, by
$3.4 million, or 1.4 percent. The variance
was due to a higher-than-budgeted staffing level and associated compensation.
Partly offsetting the 2007 overrun were
lower-than-budgeted expenses in several
areas. Expenses for the supervision and
regulation function were $8.0 million,
or 1.3 percent, less than the amount budgeted, largely because of staffing underruns at several Banks. Expenses for local
cash operations were $7.3 million below
budget because of lower-than-planned
volume, additional recoveries resulting
from the new currency recirculation policy, and processing efficiencies.4 Expenses
for Treasury services were under budget
$2.3 million, or 0.9 percent, largely as a
result of the New Treasury Automated
Auction Processing System (NTAAPS)

2007 Budget Performance
Actual Reserve Bank expenses in 2007
totaled $2,983.5 million—$30.2 million,
or 1.0 percent, more than the $2,953.3
million budgeted. Staffing totaled 19,535
ANP—293 ANP below the 2007 budgeted
level of 19,828 ANP.
The expense overrun was due mainly
to greater Systemwide costs in preparation for additional restructuring of
check services whereby the number of
check-processing sites will be reduced
from twenty-two to four by 2011 (costs
included $34.0 million for accrual of
severance, equipment impairments, and
other expenses). Higher-than-projected
demand for electronic check services,
with associated higher costs for staffing,
printing supplies, and equipment, contrib3. ANP is the average number of employees
in terms of full-time positions for the period. For
instance, a full-time employee who works half the
year counts as 0.5 ANP for that calendar year, and
two half-time employees who work the full year
count as 1 ANP.

Amount

Percent

18,366
844
45

–307
23
4

–1.6
2.8
9.0

19,255

–280

–1.4

4. Under the recirculation policy, depository
institutions are charged a fee if they deposit large
amounts of fit $10 and $20 notes and order notes in
the same denomination within the same week.

Federal Reserve Banks 17

and Treasury’s Collections and Cash
Management Modernization (CCMM)
initiative.5 Lastly, personnel and ongoing operations costs in several support
functions, including law enforcement and
human resources, were $0.9 million, or
0.9 percent, below budget.
The underrun of 293 ANP was due
to lower-than-budgeted staffing in several areas. Staffing in the cash operations
area was 60 ANP under budget, mainly
because of a decline in volume attributable to implementation of the fee component of the recirculation policy and to
productivity gains. The law enforcement
and facilities functions were 45 ANP and
20 ANP, respectively, under budget
because of higher-than-planned turnover and a longer-than-expected time
to fill vacant positions. Staffing in the
check services area was 52 ANP under
budget, reflecting a greater-than-planned
decline in the volume of paper checks,
partly offset by additional staff to support
electronic check operations. Staffing for
Treasury services was 31 ANP below
budget, reflecting the CCMM initiative
and a reduction in the volume of services
provided. Staffing for the supervision and
regulation function was under budget
by 26 ANP, mainly because of turnover
and longer-than-planned hiring delays,
and the Customer Relations and Support
office was 13 ANP under budget because
of hiring lags and efficiency gains. The
overall staffing underrun was partly offset by an increase of 30 ANP to support
FRIT projects.

Initiatives Affecting the
2008 Budget
The Reserve Banks’2008 budgets include
funding for several initiatives that will
5. CCMM is a comprehensive, multiyear
initiative to streamline, modernize, and improve
the services, systems, and processes supporting
the Treasury’s collections and cash-management

enhance information security and resiliency and address staffing needs. The
budgets also support efforts to modernize
and increase efficiency in the cash operations and check services areas.

Central Bank Services
The central bank services area includes
monetary policy, public programs, supervision and regulation, and cash operations. For 2008, expenses in this area are
budgeted to increase $137.2 million, or
8.2 percent, over 2007 expenses. The total
cost for monetary policy and public programs is increasing $36.9 million, or 7.3
percent, driven primarily by salary-related
costs but also by expenses related to
resiliency enhancements in central bank
functions. The staffing level is increasing
37 ANP, in part as a result of the full-year
effect of staff additions in 2007 and the
need for additional personnel to support
resiliency efforts.
Expenses for the supervision and
regulation function are increasing
$47.2 million, or 8.0 percent, mainly
as a result of higher compensation for
current staff to address retention issues.
The staffing level is increasing by 23 ANP
because of the lengthened time frame for
filling budgeted positions and a shift
in resource allocation across Districts
as a result of evolving supervisory
responsibilities.
Expenses in cash operations are
increasing $30.2 million, or 7.2 percent,
reflecting expenses related to CACHE
(Currency and Coin Handling Environment) (formerly FCAP, or Future Cash
Automation Project) and to facilities and
law enforcement support. The support
increases are being partly offset by a
decline in direct costs of $0.4 million, or
0.3 percent.
programs. The goal is to improve efficiency and
reduce costs to the Treasury, thereby providing a
savings to taxpayers.

Annual Report: Budget Review, 2008

Treasury Services
The cost of providing services to the
Treasury, which is fully reimbursed,
is budgeted to increase $15.0 million, or 3.4 percent. Staffing is budgeted to decrease by 12 ANP. The
expense increase is being driven by
$7.6 million in accelerated software
amortization and personnel costs resulting
from the CCMM initiative.

Check Services
Expenses for providing check services
are budgeted to decrease $82.3 million,
or 11.5 percent, in 2008, reflecting the
non-recurrence of the costs of restructuring check operations that were accrued
in 2007 and the continuing decline in the
volume of paper checks processed. The
decrease is being partly offset by higher
costs related to electronic check operations, including costs associated with
the development of the new electronic
check software. Staffing for check services is budgeted at 553 ANP below the
2007 level, mainly because of the closure of check sites and the projected
continued decline in the volume of paper
checks.

Support Services
The cost of providing support services
is budgeted to increase $52.8 million,
or 6.2 percent. The increase is being
driven mainly by additional costs for
building projects ($16.6 million) and
expenses (mainly salary-related) for
information technology ($18.5 million)
and law enforcement ($7.3 million).
The staffing level is increasing 85 ANP
to support application development and
contingency efforts and to bring staffing
back to normal levels in facilities and
law enforcement after 2007 turnover and
hiring delays.

Five-Year Trend in
Reserve Bank Expenses
Total operating expenses for the Reserve
Banks grew an average of 3.3 percent
annually over the five years 2003 through
2007. Growth was greatest in the area of
services to the U.S. Treasury.

Central Bank Services
Expenses for central bank services grew
an average of 5.5 percent annually over
the 2003–2007 period. The increase was
mainly in the monetary policy and public programs areas; in those areas, the
annual increase averaged 7.5 percent as
Banks added resources dedicated to community outreach, promotion of financial
literacy, and regional economic research.
Efficiency improvements in the cash
operations area resulted in average annual
growth of 2.9 percent. Expenses for the
supervision and regulation function grew
an average of 5.3 percent a year, reflecting the addition of resources necessary
to implement Basel II and to modify the
Federal Reserve’s approach to supervising
large financial institutions.

Treasury Services
Expenses for providing services to the
U.S. Treasury grew on average 7.9 percent
annually from 2003 through 2007. Recent
efforts by the Treasury to limit expense
growth and increase efficiency resulted in
modest growth of the 2008 budget over
2007 actual expenses. Growth in the earlier part of the five-year period was driven
primarily by the TWAI (Treasury Web
Applications Infrastructure) project and in
later years by the NTAAPS project.6

6. TWAI is a web environment that supports
Treasury applications and connects customers and
other businesses through the web.

Federal Reserve Banks 19

Priced Services
Priced-services expenses declined an
average of 2.4 percent annually from
2003 through 2007, mainly as a result of
the decline in the volume of paper checks.
Commensurate reductions in the size of
check operations resulted in an average
annual decline in the cost of providing
check services of 4.4 percent. Over the
five-year period, staffing declined by
1,720 ANP as check operations were
consolidated into fewer sites.

2008 Personnel Expenses
Reserve Bank officer and employee salaries and other personnel expenses budgeted for 2008 total $1,552.8 million, an
increase of $49.2 million, or 3.3 percent,
over actual 2007 expenses. The increase is
the combined effect of the budgeted salary
administration program, partially offset
by lower severance expenses for 2008
relative to those associated with check
restructuring accrued in 2007. Funding
for officer and employee salary administration programs is increasing $81.0
million, largely because of increases in
the base salary programs; merit pools for
officers and employees total $54.5 million, and promotions and market-based
salary adjustments total $19.5 million.7
The merit budget reflects weightedaverage increases of 4.2 percent and 4.0
percent in base salaries for officers and
employees, respectively. The budget for
variable-pay programs is increasing $7.1
million, primarily attributed to Reserve
Bank efforts to attract and retain officers
and employees who have critical and
highly marketable skills.
In addition to the increases for the salary administration programs, the Banks
7. Salary administration includes two categories of expense: base salary programs (merit, promotion, and market-adjustment pools)
and variable-pay programs (cash awards and
incentives).

have budgeted a $2.7 million increase
for retention programs, especially for a
program to retain key staff during the
multiyear restructuring of check services. Partly offsetting these increases is a
$31.5 million decrease in severance
expense due to the payments accrued in
2007 associated with restructuring initiatives primarily in the check services
area.
Turnover is projected to increase from
11.5 percent in 2007 to 13.7 percent in
2008, in large part because of the check
restructuring initiative. Of the 2,593 ANP
projected to leave the Reserve Banks,
FRIT, and OEB in 2008, an estimated
31.9 percent will not be replaced, mostly
in the check services area.

Risks in the 2008 Budget
Check services continues to be an area
for which the Reserve Banks have identified considerable risk. If the budgeted
44 percent decline in the volume of paper
checks fails to materialize, the Banks
would incur costs for higher-than-planned
staffing levels; however, the increased
costs would be offset by corresponding
revenue. The continued rapid growth of
electronic check items could present operational challenges, and if the adoption of
FedReceipt is slower than anticipated, the
Banks would require additional staffing,
equipment, and supplies beyond those
budgeted.8 Additional funding may be
required if there are delays or higher-thanexpected costs related to the development
of a new version of electronic check software. Plans for the next phase of check
restructuring have been announced and
include consolidation plans through first
quarter 2011 as the System moves toward
four full-service check-processing sites.
8. FedReceipt is a service in which the paying
bank agrees to the electronic presentment of checks
with accompanying images.

Annual Report: Budget Review, 2008

Difficulty projecting currency volume
given the recent implementation of the
new recirculation policy, the CACHE
software development effort, and the
high-speed sorting equipment upgrade
pose significant risks for the 2008 budget.
The volume accounted for in the budget
may differ from actual volume, and the
cost assumptions may differ from actual
costs, depending on how aggressively
depository institutions adjust the frequency of their currency deposits to avoid
recirculation fees. In addition, significant
changes to the CACHE requirements or
timeline could adversely affect the budget. Also, continuing delays in the project
to upgrade high-speed sorting equipment
may adversely affect the Banks’ ability to
meet productivity targets and to reduce
the number of staff.

2008 Capital Plan
The 2008 capital budget for the Reserve
Banks and FRIT totals $534.6 million—
$73.0 million, or 15.8 percent, more
than 2007 expenses. The budget funds
initiatives to enhance resiliency in central
bank functions and increase efficiency in
the cash area.
As in previous years, the 2008 capital
budget includes funding for projects that
support the strategic direction outlined
by the individual Reserve Banks and
the System. These strategies focus on
investments that improve operational
efficiencies, enhance services to Bank
customers, and ensure a safe and highquality work environment. In support of
these strategies, the 2008 budget identifies
seven categories of capital outlays: building projects and facility improvements,
payment systems improvements, cash
services initiatives, Treasury initiatives,
information technology initiatives, secu-

rity enhancements, and miscellaneous
acquisitions.
The capital budget includes $209.2
million for building-related projects and
facility improvements. Of this amount,
$81.0 million is related to major projects begun in previous years in Boston,
New York, Richmond, Chicago, St.
Louis, and Kansas City. Also included is
$20.4 million for facilities-related aspects
of the resiliency enhancement project. The
remaining outlays in this category will
fund building renovation and refurbishment projects as well as miscellaneous
facility improvement projects.
Expenses for payment systems improvements, cash services initiatives, and Treasury initiatives account for $138.3 million
in the capital budget. Almost half that
amount ($61.8 million) is budgeted to
support CACHE software development
and to upgrade cash-processing machines.
Also included is $39.0 million for reimbursable Treasury initiatives in support of
the TWAI, NTAAPS, and e-Government
projects.
Funding for information technology
initiatives accounts for $106.3 million in
the capital budget. (These initiatives do
not include the automation components of
initiatives in the building projects category or the payment systems improvements
category discussed in earlier paragraphs.)
Of the information technology initiatives
total, FRIT projects and acquisitions
account for $35.5 million and the resiliency project accounts for $33.9 million.
In addition, the capital budget includes
funding for local server equipment
($8.6 million) and software upgrades
($11.0 million) at the Reserve Banks.
Finally, the capital budget includes
$76.3 million for security enhancements
and $4.4 million for miscellaneous acquisitions of equipment and software not
fitting into one of the other categories.
■

Appendixes

Federal Reserve Budget Process

Appendix A

Federal Reserve Budget Processes
The Board of Governors and the Federal
Reserve Banks have separate budgets and
separate budget processes.

Board of Governors
The Board’s budget covers a twoyear period. The budget process is as
follows:
• Each Board division examines its
operating environment and considers
whether any adjustments to its mission,
priorities, activities, and associated
resources might improve the efficiency
and effectiveness of the Board’s
operations. A proposed budget based
on Boardwide priorities and planning
assumptions is prepared for each
division.
• The divisions give their proposed
budgets to the Staff Planning Group
(SPG), a group composed of seniorlevel officers from across the Board,
which develops a preliminary Boardwide budget. The Board’s Committee
on Board Affairs (CBA) then reviews
the preliminary budget and clarifies
outstanding planning issues with the
SPG.
• The CBA submits the proposed budget
to the Board for its consideration and
approval.
• If events warrant any changes to the
approved budget, the CBA seeks additional Board approval.
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.

Federal Reserve Banks
The Reserve Banks’ budgets cover one
year. Each year, each Bank establishes
major operating goals for the coming
year, devises strategies for attaining those
goals, estimates required resources, and
monitors results. The Banks’ budgets are
structured by operational area, with support and overhead attributable to each area
charged to that area.
The operations and financial performance of the Reserve Banks are monitored throughout the year by way of a
cost-accounting system, the Planning and
Control System (PACS). Under PACS,
the costs of all Bank services, both priced
and nonpriced, are grouped by operational
area, and the associated costs of support
and overhead are charged to these areas
accordingly. PACS makes it possible to
compare budgets with actual expenses
and facilitates comparison of the financial
and operating performances of the Banks.
During the budget year, the Banks must
submit proposals for major purchases of
assets to the Board for further review and
approval.
Following is a summary of the Reserve
Bank budget process:
• The business leaders in each functional
area provide guidance to assist the
Banks as they develop their budget
projections for the upcoming year.
The budget information is submitted
to Board staff for review.
• Board staff review the Banks’ budgets,
both individually and in the context
of Systemwide issues and the other
Banks’ plans.
• The Committee on Federal Reserve
Bank Affairs is briefed on the Bank
budgets.
• The budgets are provided to the members of the Board for final action.
■

Priced Services 25

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 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 actual and
projected revenue from priced services.

Annual Pricing Process
To meet the requirement for the full recovery of costs over the long run, the Federal
Reserve has developed an annual pricing
Table B.1
Revenue from Priced Services, 2006–2008
Millions of dollars
Service
Funds transfers and
net settlement .........
Automated
clearinghouse .........
Commercial checks....
Book-entry securities
transfers..................

2006
(actual)

2007
(actual)

2008
(budgeted)

72.3

74.5

72.9

91.4
845.7

102.0
812.0

99.1
700.7

21.9

23.9

23.6

Total........................... 1,031.2

1,012.3

896.2

Note: Components may not sum to totals because of
rounding.

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 (FSPC), and ultimately by the
Board of Governors.1
The cost of float is projected by
applying the federal funds rate to the
estimated level of float to be generated
in the coming year. The PSAF return on
equity is calculated by applying an equity
financing rate, based on a simple capital
asset pricing model using data from the
equity market as a whole, 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
from financial data for the fifty largest
U.S. bank holding companies, based on
deposit balances.
The other components of the PSAF are
derived from the budgets of the Reserve
Banks and the Board: the imputed sales
tax (based on budgeted outlays for materials, supplies, and capital); the imputed
assessment for insurance by the Federal
Deposit Insurance Corporation (based on
expected clearing balances and amounts
deferred to depository institutions for
items deposited for collection with the
Reserve Banks); and the portion of the
expenses of the Board of Governors

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 FSPC is responsible for the overall
direction of financial services for the Banks.

Annual Report: Budget Review, 2008

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 27

Appendix C

Currency Budget
Federal Reserve Banks issue new and fit
currency (Federal Reserve notes) to the
public through depository institutions and
destroy currency already in circulation
as it becomes unfit or when a redesigned
note is issued. Each year, under authority delegated by the Board of Governors,
the director of the Board’s Division of
Reserve Bank Operations and Payment
Systems orders new currency from the
U.S. Department of the Treasury’s Bureau
of Engraving and Printing (BEP). Upon
reviewing the order, the BEP establishes
rates for printing new currency, which the
Board staff uses to prepare a proposed
annual budget for supplying currency.
Once the currency budget has been
approved, each Reserve Bank is assessed
a share of the budgeted amount through
an accounting procedure.
Actual 2007 expenses for supplying
currency were under budgeted 2007
expenses by $21.8 million, or 3.6 percent,
primarily because of lower-than-expected
printing and transportation costs.1 The
1. The budgeted amounts reported in this
appendix are from the Board’s 2008 official currency budget, approved in December 2007. The

Chart C.1
Federal Reserve Costs for Supplying
Currency, 1998–2008
Millions of dollars

600
500
400
300
200
100
1998

2000

2002

2004

2006

2008

Note: For 2008, budgeted.

2008 currency budget of $602.4 million
is 4.6 percent higher than actual 2007
expenses (chart C.1, table C.1). Currency
printing costs represent 96 percent of the
currency budget; expenses for currency
transportation and counterfeit-deterrence
research, and reimbursement to the U.S.
Treasury’s Office of Compliance, account
for the remaining 4 percent.
actual amounts reported are updates of the estimated
amounts reported in that budget.

Table C.1
Federal Reserve Costs for Supplying Currency, 2007 and 2008
Thousands of dollars, except as noted
2007
(actual)

2008
(budgeted)

Percent
change

Printing of new currency............................................................................
Currency transportation .............................................................................
Counterfeit-deterrence research .................................................................
Reimbursement to the U.S. Department of the Treasury Office of
Compliance ........................................................................................

554,855
13,727
3,390

578,461
15,910
3,730

4.3
15.9
10.0

4,032

4,271

5.9

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

576,005

602,372

4.6

Item

Note: Does not include costs for uncut currency not intended for circulation. Components may not sum to totals
because of rounding.

Annual Report: Budget Review, 2008

Table C.2
Projected Federal Reserve Costs for Printing New Currency, by Type of Note, 2008
Number of
notes
(millions)

Percent of
total notes

Cost per
thousand notes
(dollars)

Total cost
(thousands of
dollars)

Unthreaded ($1, $2) ...................................
Series 1996 ($100) .....................................
Series 2004
$5 ..........................................................
$10..........................................................
$20 and $50............................................
$100p ......................................................
Volume-weighted average cost ..................

3,667.9
854.4

44.2
10.3

47.07
79.11

172,648
67,592

1,369.6
774.4
820.1
817.7
...

16.5
9.3
9.9
9.8
...

74.20
76.50
91.63
125.00
69.66

101,624
59,242
75,147
102,208
...

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

8,304.1

100.0

...

578,461

Type of note

. . . Not applicable.
p Preliminary.

Printing of Federal Reserve Notes
Printing of the currency ordered for
2008 is budgeted at $578.5 million,
4.3 percent more than the cost of printing
the 2007 order. When weighted by volumes
ordered, the average billing rate charged
by the BEP is increasing 10 percent,
from $63.33 per thousand notes in 2007
to $69.66 per thousand notes in 2008
(table C.2); excluding printing of the
Series 2004 $100 note (for which the
billing rate is expected to be considerably higher), the average billing rate is
remaining much the same, at $63.62 per
thousand notes.
The 2008 printing budget is higher than
actual 2007 expenses because the 2008
order includes a larger share of moreexpensive Series 2004 notes than did the
2007 order—46 percent, compared with
32 percent. The increase in share reflects
production of the Series 2004 $5 note,
which the Reserve Banks began issuing
in March 2008, and expected production
of the Series 2004 $100 note. BEP’s final
billing rate for the $100 note, and the
production timeline, will not be known
until the final design is completed, but
the rate is expected to be considerably
higher than that for other notes, largely

because of security enhancements,
including new features intended to
improve the public’s ability to authenticate the notes.

Currency Transportation
The 2008 currency transportation budget,
which totals $15.9 million, includes the
costs of shipping new currency from the
Bureau of Engraving and Printing to the
Reserve Banks ($10.8 million), shipping
fit and unprocessed currency within the
System ($5.1 million), and returning
currency pallets to the BEP ($43 thousand). The 2008 budget for shipping
new currency is 23.7 percent greater than
actual 2007 expenses—4.9 percent due to
higher contracted transportation rates and
18.8 percent due to anticipated shipping
of new $100 notes. The budget for intraSystem shipments is 2.6 percent greater
than actual 2007 expenses; included is
a 20 percent ($613 thousand) increase
to cover the additional shipments of
unprocessed currency between Reserve
Banks expected in 2008 to help manage
System inventories during a planned
major upgrade of currency-processing
machines.

Currency Budget 29

Counterfeit-Deterrence Research
The 2008 budget for counterfeitdeterrence research is $3.7 million.
Most of that amount (99 percent) is the
Board’s contribution to the work of the
Central Bank Counterfeit Deterrence
Group (CBCDG), an organization of
nearly thirty central banks operating
under the auspices of the G-10 central
bank governors with the purpose of
combating digital counterfeiting. The
2008 budgeted contribution to CBCDG is
9.9 percent more than 2007 expenses. The
remainder of the counterfeit-deterrence
research budget is for support of the
work of the Reprographic Research
Center, a state-of-the-art facility hosted
by the National Bank of Denmark that
the twelve member central banks use for

adversarial testing of banknote designs
and counterfeit-deterrence features.

Reimbursement to the Treasury’s
Office of Compliance
The 2008 budget for reimbursement of
the U.S. Department of the Treasury for
currency-related work by the Office of
Compliance is $4.3 million. That office
develops standards for the Reserve Banks
concerning canceling and destroying unfit
currency and accounting for notes, and
then reviews the Bank’s currency operations for compliance with those standards.
In addition, the Office of Compliance
processes claims for the redemption of
damaged or mutilated currency.
■

Board Expenses and Employment 31

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,
2004–2009
Millions of dollars
Division, office, or special account

2004–05
(budgeted)

2004–05
(actual)

2006–07
(budgeted)

2006–07
(actual)

2008–09
(budgeted)

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

25.0
11.5
76.0
28.7
24.9
86.0
25.0
23.8

23.6
11.1
76.4
28.5
24.6
87.6
24.2
22.6

26.4
12.4
82.7
32.0
28.4
99.4
29.5
26.1

24.7
12.3
81.2
29.1
27.6
96.8
30.8
23.1

30.2
14.6
98.7
36.7
33.8
106.0
38.2
29.4

38.3
16.2
82.5
109.8
–38.0
9.6
8.1
10.0

37.7
16.8
81.6
109.4
–38.0
7.9
11.1
9.4

51.4
16.8
91.2
122.2
–39.8
9.8
12.0
9.0

49.8
18.9
89.5
127.4
–39.5
13.5
7.9
8.3

58.5
21.6
105.8
148.4
–44.4
13.3
13.7
2.0

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

537.2

534.6

609.5

601.4

706.3

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

8.5

8.1

10.2

9.5

12.7

Note: Components may not sum to totals because of rounding.

Annual Report: Budget Review, 2008

Table D.2
Operating Expenses of the Board of Governors, by Account Classification, 2004–2009
Millions of dollars
Account classification

2004–05
(budgeted)

2004–05
(actual)

2006–07
(budgeted)

2006–07
(actual)

2008–09
(budgeted)

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

333.7
32.6
29.3
395.6

332.0
33.5
27.8
393.3

380.2
35.7
31.4
447.3

372.7
38.8
35.3
446.8

441.4
48.3
36.8
526.6

14.9
1.0
10.0
2.9
1.7
2.4
14.1
7.7
0.7
2.0
6.5
5.8
2.3

14.7
0.9
10.1
2.5
1.5
2.8
12.3
7.7
0.6
1.7
7.2
5.2
2.2

15.7
1.0
10.8
2.7
1.2
2.3
14.6
7.5
1.2
2.0
7.8
4.6
2.5

17.2
1.0
9.8
2.6
0.9
2.5
13.3
8.1
1.1
1.7
8.3
4.0
2.6

18.5
1.1
11.6
2.8
1.1
2.3
15.8
8.7
4.9
2.2
8.5
4.8
2.7

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 other1 ..................................................
Subtotal ................................................

1.3
51.2r

1.7
49.4r

1.7
62.8

2.2
59.8

2.3
67.9

4.4
1.3
24.8
–13.2
141.8r

4.5
1.3
25.4
–10.3
141.3r

4.8
1.3
28.8
–11.4
162.2

5.2
1.4
26.6
–13.7
154.6

6.5
1.2
29.8
–13.1
179.7

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

537.2r

534.6r

609.5

601.4

706.3

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

8.5

8.1

10.2

9.5

12.7

Note: Components may not sum to totals because of
rounding.

1. All other includes, among other items, Accounts,
Risk and Credit (ARC) System expenses and income; IRM
income and user charges; and interest expenses.
r Revised.

Board Expenses and Employment 33
Table D.3
Positions Authorized at the Board of Governors, by Division, Office, or Special Account,
2004–2009
Division, office, or special account

2004–05
(initial)

2004–05
(ending)

2006–07
(initial)

2006–07
(ending)

2008–09
(current1)

Board Members........................................
Secretary ..................................................
Research and Statistics.............................
International Finance ...............................
Monetary Affairs ......................................
Banking Supervision and Regulation.......
Consumer and Community Affairs ..........
Legal ........................................................
Reserve Bank Operations and Payment
Systems ................................................
Staff Director for Management ................
Information Technology2 .........................
Management Division3 .............................
Special projects ........................................

78
50
275
116
68
238
83
80

77
50
275
116
74
254
89
80

78
50
275
116
75
254
94
80

80
50
275
114
78
258
101
80

81
50
287
115
81
255
105
80

139
44
289
433r
1

139
45
301
460r
0

139
45
301
469
0

138
46
318
487
0

138
48
326
487
0

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

1,894r

1,960r

1,976

2,025

2,053

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

Note: Includes only those divisions, offices, and special
accounts that have authorized position counts.
1. As of the end of the first quarter, 2008.
2. Includes positions that support the Federal Financial
Institutions Examination Council for processing data col-

lected under the Home Mortgage Disclosure Act and the
Community Reinvestment Act.
3. Excludes summer interns.
r Revised slightly.

Bank Expenses and Employment 35

Appendix E

Expenses and Employment
at the Federal Reserve Banks
Table E.1
Operating Expenses of the Federal Reserve Banks, by District, 2007 and 2008
Thousands of dollars, except as noted
Percent change
District

2007
(budgeted)

2007
(actual)

2008
(budgeted)

2007 actual
compared with
2007 budgeted

2008 budgeted
compared with
2007 actual

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

151,625
573,662
147,732
208,644
231,262
337,336
274,162
229,623
159,786
173,175
186,662
279,662

161,154
576,068
148,124
218,339
237,433
318,581
288,812
224,648
161,582
179,930
193,663
275,156

157,796
599,736
157,028
218,332
245,270
355,650
277,736
227,877
168,218
181,033
190,820
287,474

6.3
0.4
0.3
4.6
2.7
–5.6
5.3
–2.2
1.1
3.9
3.8
–1.6

–2.1
4.1
6.0
0.0
3.3
11.6
–3.8
1.4
4.1
0.6
–1.5
4.5

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

2,953,331

2,983,492

3,066,970

1.0

2.8

Note: Excludes capital outlays. Includes expenses
budgeted by Federal Reserve Information Technology and
the Office of Employee Benefits. Reflects all redistributions

for support and allocations for overhead. Components may
not sum to totals and may not yield percentages shown
because of rounding.

Annual Report: Budget Review, 2008

Table E.2
Employment at the Federal Reserve Banks, by District, and at FRIT and OEB,
2007 and 2008
Average number of personnel
Change
District

2007
(budgeted)

2007
(actual)

2008
(budgeted)

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

993
2,868
1,092
1,604
1,854
2,042
1,544
1,124
1,273
1,386
1,331
1,879

988
2,839
1,071
1,574
1,830
1,986
1,501
1,086
1,251
1,371
1,339
1,836

1,000
2,764
1,063
1,581
1,827
1,939
1,457
1,074
1,235
1,330
1,316
1,781

–5
–29
–21
–29
–24
–56
–42
–38
–22
–14
8
–43

13
–75
–8
7
–4
–47
–44
–13
–17
–41
–23
–55

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

18,990

18,673

18,366

–317

–307

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

793
45

821
41

844
45

28
–4

23
4

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

19,828

19,535

19,255

–293

–280

Note: The term average number of personnel (ANP)
describes levels and changes in employment. ANP is the
average number of employees in terms of full-time positions
for the period. For instance, a full-time employee who starts

2007 actual
2008 budgeted
compared with compared with
2007 budgeted
2007 actual

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

Table E.3
Operating Expenses of the Federal Reserve Banks, FRIT, and OEB, by Operational Area,
2007 and 2008
Thousands of dollars, except as noted
Percent change
Operational area

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

2007
(budgeted)

2007
(actual)

2008
(budgeted)

2007 actual
2008 budgeted
compared with compared with
2007 budgeted
2007 actual

343,606

351,221

390,209

2.2

11.1

442,689

434,578

449,530

–1.8

3.4

738,599
601,173

724,909
593,222

775,855
640,450

–1.9
–1.3

7.0
8.0

827,264

879,561

810,926

6.3

–7.8

2,953,331

2,983,492

3,066,970

1.0

2.8

Note: Excludes capital outlays. Includes expenses
budgeted by Federal Reserve Information Technology and
the Office of Employee Benefits. Reflects all redistributions

for support and allocations for overhead. Components may
not sum to totals and may not yield percentages shown
because of rounding.

Bank Expenses and Employment 37
Table E.4
Employment at the Federal Reserve Banks, FRIT, and OEB, by Operational Area,
2007 and 2008
Average number of personnel
Change
Operational area

2007
(budgeted)

2007
(actual)

2008
(budgeted)

2008 budgeted
2007 actual
compared with compared with
2007 actual
2007 budgeted

928

934

1,018

1,289

1,258

1,246

–32

–12

2,707
2,676

2,615
2,656

2,542
2,673

–92
–20

–72
16

2,747
9,481

2,692
9,381

2,155
9,621

–55
–100

–537
241

19,828

19,535

19,255

–293

–280

Note: Components may not sum to totals and may not yield variances shown because of rounding.

Table E.5
Expenses of the Federal Reserve Banks for Salaries of Officers and Employees, by District,
2007 and 2008
Thousands of dollars, except as noted
Percent change
District

2007
(budgeted)

2007
(actual)

2008
(budgeted)

2008 budgeted
2007 actual
compared with compared with
2007 actual
2007 budgeted

75,678
278,439
66,541
87,032
115,453
126,839
107,566
71,170
72,400
87,287
78,483
139,734

74,910
272,673
65,974
85,598
112,490
125,943
103,010
69,893
71,135
86,097
78,185
135,843

81,081
290,068
70,018
90,268
119,432
130,154
108,595
73,310
74,819
89,354
81,949
142,469

–1.0
–2.1
–0.9
–1.6
–2.6
–0.7
–4.2
–1.8
–1.7
–1.4
–0.4
–2.8

8.2
6.4
6.1
5.5
6.2
3.3
5.4
4.9
5.2
3.8
4.8
4.9

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

1,306,621

1,281,751

1,351,515

–1.9

5.4

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

71,611
4,927

70,218
4,688

77,844
5,028

–1.9
–4.9

10.9
7.3

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

1,383,159

1,356,657

1,434,387

–1.9

5.7

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

Annual Report: Budget Review, 2008

Table E.6
Capital Outlays of the Federal Reserve Banks, by District, and of FRIT and OEB,
2007 and 2008
Thousands of dollars, except as noted
Percent change
District

2007
(budgeted)

2007
(actual)

2008
(budgeted)

18,334
77,456
23,361
24,161
59,717
32,928
20,633
43,559
5,131
150,439
17,318
49,669

17,440
52,047
16,433
21,777
26,910
10,981
13,154
40,908
3,533
140,705
8,889
53,056

28,439
138,452
22,615
24,817
69,707
22,889
23,768
33,298
7,008
16,193
25,776
56,691

–4.9
–32.8
–29.7
–9.9
–54.9
–66.7
–36.2
–6.1
–31.1
–6.5
–48.7
6.8

63.1
166.0
37.6
14.0
159.0
108.5
80.7
–18.6
98.4
–88.5
190.0
6.9

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

522,708

405,833

469,655

–22.4

15.7

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

68,115
800

55,152
653

64,908
0

–19.0
–18.4

17.7
...

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

591,623

461,637

534,562

–22.0

15.8

2007 actual
2008 budgeted
compared with compared with
2007 budgeted
2007 actual

Note: Components may not sum to totals and may not yield percentages shown because of rounding.
. . . Not applicable.

Table E.7
Capital Outlays of the Federal Reserve Banks, FRIT, and OEB, by Asset Classification,
2007 and 2008
Thousands of dollars, except as noted
Percent change
Asset classification

2007
(budgeted)

2007
(actual)

2008
(budgeted)

Equipment ..........................................
Furniture, furnishings, and fixtures.....
Land and other real estate ..................
Building...............................................
Building machinery and equipment ....
Leasehold improvements ....................
Software ..............................................
Art .......................................................

138,623
27,912
11,282
274,662
58,199
1,772
78,013
1,161

101,696
18,440
15,046
215,935
38,527
2,111
69,131
752

153,252
24,725
9,197
203,431
41,134
370
101,761
692

–26.6
–33.9
33.4
–21.4
–33.8
19.2
–11.4
–35.2

50.7
34.1
–38.9
–5.8
6.8
–82.5
47.2
–8.0

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

591,623

461,637

534,562

–22.0

15.8

2007 actual 2008 budgeted
compared with compared with
2007 budgeted 2007 actual

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

Maps of the Federal Reserve System 39

Maps of the
Federal Reserve System

Annual Report: Budget Review, 2008

The Federal Reserve System

9
MINNEAPOLIS

12
SAN FRANCISCO

CHICAGO

CLEVELAND

KANSAS CITY
ST. LOUIS

8
11 D

BOSTON
NEWYORK

HILADELPHIA

RICHMOND

TLANTA

ALLAS

ALASKA
HAWAII

Legend
Both pages
Federal Reserve Bank city
Board of Governors of the Federal
Reserve System, Washington, D.C.
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.
Commonwealths and territories
are served 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 2007.

Maps of the Federal Reserve System 41

1−A

2−B

4−D

3−C

5−E

Pittsburgh

NY
NJ

Buffalo
NY

6−F

CLEVELAND

PHILADELPHIA
7−G

Nashville

Charlotte

NEW YORK

BOSTON

Cincinnati

MA
CT

VT
NH

Baltimore

RICHMOND
8−H
KY

Birmingham

New Orleans

Louisville

Jacksonville

Detroit

Memphis

Little
Rock

Miami

9−I

ST. LOUIS

CHICAGO

ATLANTA
MT

Helena

MINNEAPOLIS
12−L

10−J
WY

Omaha

Denver

ALASKA

Seattle

Oklahoma City

Portland

KANSAS CITY

ID
CA
NV

11−K

Salt Lake City

El Paso

Houston

Los Angeles

San Antonio
HAWAII

DALLAS

SAN FRANCISCO

0508

Full text of Annual Report : Budget Review : 2008

FRASER