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Federal R eserve Bank
OF DALLAS
WILLIAM H. WALLACE
F IR S T VICE P R E S ID E N T
December 12, 1986
dallas, texas
75222
Circular 86-108
TO:
The Chief Executive Officer of
all financial institutions in the
Eleventh Federal Reserve District
SUBJECT
Request for public comment on proposed factors to be considered when
consolidating Federal Reserve priced services across District lines and
approval of consolidating municipal bond and coupon collection activities of
the Federal Reserve Bank of San Francisco at the Minneapolis Reserve Bank.
DETAILS
The Board of Governors of the Federal Reserve has issued for public
comment a list of factors to be considered when Reserve Banks propose to
consolidate a priced service across District lines. The Dallas Fed encourages
your comments and suggestions on this important topic which has the potential
to change traditional operating patterns. As the interstate banking
environment grows, the Federal Reserve will continue to look for better
methods to provide financial services to meet the needs of institutions
operating locally as well as those operating nationwide. If you do choose to
comment, please provide us with a copy. Comments are requested by January 28,
1987. Please send copies of your comments to: Mr. Richard D. Ingram, Federal
Reserve Bank of Dallas, Station K, Dallas, Texas 75222.
In addition to this request, the Board approved consolidation of the
municipal bond and coupon collection activities of the Federal Reserve Bank of
San Francisco at the Minneapolis Reserve Bank.
ATTACHMENTS
The Board's notice is attached for your review.
MORE INFORMATION
For more information on this topic, contact Mr. Robert Smith, III at
(214) 651-6207 or Mr. Richard D. Ingram at (214) 651-6212.
Sincerely yours,
For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERAL RESERVE SYSTEM
[Docket No. R - 0 5 8 6 ]
FEDERAL RESERVE BANK SERVICES
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Request for comment.
SUMMARY:
The Board
is requesting comment on proposed
factors
to be considered in evaluating proposals to consolidate Federal
Reserve Bank priced service
activities
The Board also has
the consolidation
collection
approved
activities
of
the
Federal
across
District
of
Reserve
the noncash
Bank
of
Francisco at the Federal Reserve
Bank of Minneapolis.
DATE:
by January 28, 1987.
Comments must be received
ADDRESS:
may
Comments,
be mailed
Governors
of
which
to Mr.
the
Will iam
Federal
Constitution Avenue,
to
Room
B-2223
should
refer
W.
to Docket
Wiles,
Reserve
20th
N.W., Washington, D.C.
between
8:45
a.m.
and
No.
Secretary,
System,
lines.
San
R-0586,
Board
Street
of
and
20551, or delivered
5:15
p.m.
Comments
received may be inspected at Room B-1122 between 8:45 a.m.
5:15
p.m.,
Rules
except
Regarding
as
provided
Availability
in
§ 261.6(a)
of
of
Information,
the
12
and
Board's
C.F.R.
§ 261.6(a).
FOR FURTHER INFORMATION CONTACT:
Director
(202/452-2231)
(202/452-3956),
Daniel
L.
Division?
Division
Rhoads,
or
or
of
Senior
Elliott C. McEntee,
Donna
DeCorleto,
Federal
Reserve
Attorney
Earnestine
Hill
or
Senior
Bank
Analyst
Operations;
(202/452-3711),
Dorothea
Associate
Legal
Thompson,
Telecommunication Device for the
Deaf
Governors of the Federal Reserve
System, Washington, D.C.20551.
SUPPLEMENTARY
October
INFORMATION:
In
requested public comment on the
Reserve Bank
(50
F.R.
priced
45938,
service
Nov.
5,
1985,
the
of
Board
issue of consolidating Federal
activities
1985).
(202/452-3544), Board
across
Public
District
comment
was
lines
also
-
requested
on
a proposal
to
2-
make
permanent
a pilot
involving the consolidation of the noncash
and coupon)
program
(e.g. municipal bond
collection activity of the Federal Reserve Bank of
San Francisco at the Federal Reserve Bank of Minneapolis.
General Issue of C onsolidation.
discussing
the
concept
of
The Board received 19 comments
interdistrict
consolidation
Federal Reserve priced service activities.
not opposed to interdistrict
these
commenters
interdistrict
restrictions
Nine
expressed
consolidations
on
commenters
and
interdistrict
opposed
Ten commenters were
consolidation.
concern
However,
about
the
suggested
concept
of
nine
impact
that
consolidations
the
of
of
of
conditions
be
or
developed.
interdistrict
c on s o l i d a t i o n .
Commenters not opposed to consolidation expressed the
opinion that
interdistrict consolidation can increase operating
efficiencies
levels.
and
reduce
costs
while
maintaining
service
Twelve commenters expressed concern about the effects
consolidation
provided
by
Commenters
would
the
also
have
Federal
on
the
Reserve
expressed
level
to
or
quality
depository
concern
about
the
of
service
institutions.
impact
that
interdistrict consolidation may have on potential providers of
competing
services.
consolidation
would
Reserve
to
Banks
Some
be
commenters
believed
anticompetitive
locate
operations
in
by
permitting
low-cost
stated that
interdistrict
1980
("MCA")
(12 U.S.C.
S 248a).
consolidation was
In their
thus
sector.
accord with the pricing provisions of the Monetary
of
the
areas,
achieving economies not available to the private
commenters
that
Six
not
in
Control Act
view,
the
MCA
requires each Reserve Bank to match costs and revenues for each
service
and
interdistrict
cross-district
suggested
would
future
be
subsidization
conditions
acceptable,
interdistrict
public comment.
consolidation
under
and
of
which
services.
will
Several
interdistrict
seven commenters
consolidation
result
in
commenters
consolidations
suggested that
proposals
be published
all
for
-
One
of
the
results
3-
of
pricing
of
Federal
Reserve
service has been an increased focus on efficiency.
believes
that
in
situations
consolidating some services
at
fewer
locations.
consideration
of
efficiency
shortfalls,
payment
volume
Circumstances
one
potential
and
clearing
and automation technology,
be
gained
by
currently offered by Reserve Banks
consolidating
revenue
may
The Board
or
cost
that
may
warrant
more
services
reductions,
patterns,
include
changes
improved
in
communication
or the need for contingency programs
to ameliorate disaster recovery.
The Board shares
that
interdistrict
the concerns expressed by commenters
consolidation may
affect
service providers as well as the level
offered.
future
competition
or quality of
service
To assure that these concerns are considered
proposal
for
interdistrict
Reserve priced services,
considered
in
reviewing
has been developed.
a.
the
consolidation
following
interdistrict
list
of
among
of
in any
Federal
factors
consolidation
to be
proposals
These factors include:
Maintenance or improvement of cost
recovery in a
service.
b.
Improvement of the efficiency of Federal Reserve
Bank operations.
c.
Maintenance
or
improvement of
the
level
or
the
financial
quality of service.
d.
Responsiveness
to
changes in
services industry.
e.
Impact on private sector providers of the service
that is being consolidated.
f.
Amount
of
advance
notice
that
would
be
needed
prior to effecting an interdistrict consolidation.
Comment
is
additional
requested
on
these
factors, as
factors commenters believe
should
well
as
any
be considered by
the Federal Reserve in deciding whether to consolidate services
4-
-
across district
factor
would
lines.
be
consolidation.
those
issues
It is not anticipated that any single
determinative
Rather,
to
be
of
a
proposed
the list of proposed
weighed
in
interdistrict
factors indicates
consideration
of
whether
a
specific consolidation proposal should proceed.
With
regard
consolidation,
public
the
including
public comment,
necessary.
to
pilot
that
programs,
each
be
published
when
changes
service arrangements are proposed
that
would
effects
consolidation
however,
will
Pricing Principle Number
requested
longer-run
be
on
efforts
for
7 states that
in
fees
have
significant
the nation's
payments
mechanism.
likely
not
such
would
have
and
an
Most
effect,
and soliciting public comment on every proposal would
not be necessary.
would
proposed
the Board does not believe such an approach is
The Board's
comment
suggestion
appear
nation's
to
In the event that
have
significant,
payments
mechanism,
Finally,
contrary
the
a consolidation proposal
longer-run
Board
effects
on
solicit
public
would
the
comment.
commenters,
the
MCA does
district-by-district
Reserve,
all
not
services,
and
indirect
the
suggestion
require
basis.
over the long run,
direct
to
The
of
recovery of
MCA
requires
some
costs on a
the
Federal
to establish fees on the basis of
costs
incurred
in
providing
priced
including costs that would have been incurred
services were provided by a private sector
firm.
The Board's
Pricing Principle Number 5 states that the fees be set
revenues
in most
for major
service
circumstances.
the Board expects
categories
In addition,
each Reserve Bank
contribute to the private sector
match
costs
as a matter
to
recover
adjustment
if the
so that
Systemwide,
of practice,
its
factor
costs
for
and
locally
priced services.
San Francisco-Minneapolis
The Board also
proposal
to
Consolidation
of
requested public comment
make
permanent
the
pilot
Noncash
Colle c t i o n .
in October
consolidation
1985
of
on
the
a
5-
-
noncash collection service of the San Francisco Reserve Bank at
the Minneapolis Reserve Bank.
involves
primarily
the
securities
such
commenters
addressing
oppose
it
and
as
The
collection
municipal
seven
noncash
this
of
bonds
commenters
maturing
and
issue,
Of
commenters
oppose
service
definitive
coupons.
eight
did
collection
it.
the
15
did
The
not
eight
commenters who did not oppose the proposal focused on the fact
that consolidation would enable the Reserve Banks to control or
reduce
costs
and
maintain
collection
function.
Tax
and
Equity
noncash
levels
in
the
They cited the negative
Fiscal
volume,
service
Responsibility
making
cost
increasingly difficult.
One
Act
recovery
commenter
impact
(TEFRA)
in
noncash
that
has
this
the
had
on
service
mentioned
its positive
experience as a participant in the pilot program.
The
seven
commenters
Francisco-Minneapolis
opposed
consolidation
cited
to
the
the
same
that they had expressed regarding consolidation
few
commenters
inappropriate
solicited,
increase
because,
the
in
considered
at
Federal
volume
of
this
the
Reserve
was
public
Finally,
A
proposal
comment
projecting
1.7 percent.
concerns
in general.
consolidation
time
San
for
some
was
1986
an
commenters
contended that inadequate information on accounting and billing
procedures was provided about the pilot program.
The
pilot
Board
believes
the benefits
consolidation of the San Francisco Reserve
collection
activity
at
the
Minneapolis
making the pilot program permanent.
in
a
demonstrated
$1.00
depositors
Minneapolis
depositors
decrease
presenting
rather
to
in
the
obtain
Bank
the
noncash
warrant
The consolidation resulted
District
Francisco.
payment
Bank
per-coupon-envelope
Twelfth
than San
Reserve
by
quicker
payable
fee
for
items
to
It also enabled
and
improved
the
those
cost
recovery rate for the Minneapolis Reserve Bank and the Federal
Reserve
System.
collection
The
consolidation
at Minneapolis
is also
of
San
viewed
as
Francisco
important
noncash
to the
6-
-
ability
of
the
Federal
Reserve
to
continue
offering
a
nationwide noncash collection service.
With
regard
to comments
that
the
noncash
collection
consolidation was inappropriate in view of a projected increase
in Federal Reserve volume of 1.7 percent
data
indicates
1986.
commenters
service
preliminary
that noncash collection volume may
Board
believes
regarding
the
accounting
Depository
located
in
service
is available,
municipal
Federal
Reserve
coupons
collection
decline
and
through
the
should
for
redemption
proceeds
redemption
Federal
Bank
those
deposit
District
noncash
items
to
the
in a mixed
A depository institution's account
will
would
be
be
Reserve
concerning
and
crediting
for
to send their coupons to their
received by the Minneapolis
fees,
Twelfth
institutions
credited
on a predetermined
proceeds
for
mixed
Reserve
these
for
developed
except
a
present
Depository
local Federal Reserve Bank.
Reserve
to
where
by
practices
in procedures
forward
deposit program would continue
local
billing
Districts
wish
network
expressed
institutions,
that
Minneapolis Reserve Bank.
its
concerns
users have been addressed
the pilot program.
Bond
1986,
Further, volume will decline in the future due to TEFRA.
The
at
for
availability
credited
Bank.
billing
with
when
coupon
schedule.
payment
Additional
procedures
is
details
may
be
obtained from local Reserve Banks or the Federal Reserve Bank
of Minneapolis.
The Board believes these procedures should not
cause problems for users of the noncash collection service.
By
order
of
the
Board
of
Governors
of
the
Federal
Reserve System, November 26, 1986.
(signed) William W Wiles
William W. Wiles
Secretary of the Board
@FedFRASER