The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL R ESER V E BANK OF DALLAS
Station K, Dallas, T e x a s 7 5 2 2 2
Circular No. 84-89
August 29, 1984
TO:
All depository institutions
Reserve District
ATTENTION:
Chief Executive Officer
SUBJECT:
White Papers approved by Board of Governors of the
Federal Reserve System — “The Federal Reserve in the
Payment System" and "Standards Related to Priced
Services Activities of the Federal Reserve Banks"
SUItlARY:
Recently, the Board of Governors of the Federal
Reserve System approved the attached copies of two
policy statements known as White Papers. "The Federal
Reserve in the Payment System" sets
forth
the
rationale for Federal Reserve participation in the
payment mechanism and "Standards Related to Priced
Services Activities of the Federal Reserve Banks"
details standards for Reserve Bank personnel to follow
to ensure that conflicts of interests between the
System's priced service activities and its other
responsibilities are avoided.
ATTACHMENTS:
Board's press release and White Papers
MORE INFORMATION:
Tony J. Salvaggio, Extension 6224
ADDITIONAL COPIES
Public Affairs Department, Extension 6289
in the Eleventh Federal
B a n k s and o th e rs are e n c o u ra g e d to use the f o l lo w in g i n c o m i n g W A T S n u m b e rs in c o n t a c t i n g th is Ba nk: 1-800-442-7140
(in tr a s ta te ) a n d 1-800-527-9200 (interstate ). F o r c a ll s p la c e d lo c a lly , p le a se use 651 p lu s th e e x te n s io n re fe rred to above.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERALRESERVEpressrelease
For immediate release
August 14, 1984
The Federal Reserve Board has approved the two attached policy papers regarding
the Federal Reserve System's role in the nation's payment mechanism and the System's
policies and procedures designed to carry out provisions of the Monetary Control Act
respecting providing services to depository institutions.
One paper, entitled "The Federal Reserve in the Payment System" sets forth the
rationale for the Federal Reserve's participation in the payment mechanism, describes the
System's procedures for evaluating Federal Reserve priced services to depository institu
tions and states the System's objectives, including cost recovery, for the pricing of such
services as directed by the Monetary Control Act.
The other paper -- "Standards Related to Priced Services Activities of the
Federal Reserve Banks" -- is concerned with System safeguards for avoiding any internal
conflict of interest between the exercise of the Federal Reserve's responsibilities for
the provision of priced services to depository institutions, and its other principal
responsibilities in the fields of monetary policy, bank supervision and lending to
depository institutions.
The primary responsibility for assuring that the standards are applied is en
trusted to the management of each Reserve Bank.
The Board exercises oversight over
standards for provision of priced services through review and approval at Board level of
changes in the level of pricing and services, and through frequent on-site reviews by
Board staff of Reserve Bank activities.
In addition, the Board specified in approving its
policy statement that the Board member serving as chairman of the Board's Federal Reserve
Bank Activities Committee is responsible for overseeing investigation and responses to
complaints in this area.
Vice Chairman Martin is the current chairman of this committee
and inquiries may be directed to his attention.
The policy statements are attached.
-
Attachments.
0-
August 14, 1984
THE FEDERAL RESERVE IN THE PAYMENT SYSTEM
This paper defines the mission and role of the Federal
Reserve in the payment
to
clarify
payment
all
the
system
Federal
payment
in
purpose
and
to encourage closer
improving
the business
mechanism
The objective of
Reserve's
in order
participants
facilitate
system.
the
planning
services.
The
users
paper
role
in
is
the
cooperation among
payment
of
the paper
system
and
also
and
to
providers
outlines
of
the
procedure the Federal Reserve will use in reviewing its service
offerings.
In
summary,
providing payment
the
mission
services
is
to
of
the
Federal
promote
the
Reserve
integrity
in
and
efficiency of the payment mechanism and to ensure the provision
of
payment
services
equitable basis.
of payments,
even more
to
Given
all
the size,
this mission
important
depository
is,
institutions
speed,
and will
than it was when
and
on
an
interdependencies
likely continue
the Federal
to be,
Reserve was
established in 1913.
I.
Role of the Federal Reserve
Background
For
70
years,
active
involvement
by
the
Federal
Reserve in p ayments processing has bee n an integral part of the
2-
-
development
responding
of
the
in part
nation's
to
financial
the breakdown of
system in the early
1900s,
1913.
the Congress
At
that
time
system.
the
established
Congress,
check
collection
the Federal Reserve in
envisioned
that
the Federal
Reserve would p lay a dual role as an operator
and a regulator
of
as
the payment
1980,
mechanism.
reaffirmed
its
The Congress has,
commitment
to
this
dual
recently
role
for
as
the
Federal Reserve.
The
Federal
payment system.
Reserve has
a wide
ranging
role
in
the
Reserve Banks process about 35 percent of
the
checks written in this country and provide a nationwide network
for
the collection of
normal
check
bonds,
and bankers'
items
collection
ineligible
channels,
acceptances.
for processing
such
The
as
Federal
in developing the Automated Clearing House
provides
a
nationwide
electronic
ACH
the
Federal
(Fedwire).
securities
The
Reserve's
Federal
service
for
nationwide
Reserve
also
nationwide
Reserve
network
provides
of
net
(ACH)
settlement
a
a
each day
Finally,
variety
system
book-entry
transfer
relationships,
for
Depository
transfer
operates
the safekeeping and
account
system and now
in payments
wire
States government and agency securities.
coupons,
Reserve assisted
network.
institutions transfer billions of dollars
over
matured
through
of
United
through its
the
Federal
of
clearing
arrangements.
This participatory role has
well— contributing
directly
and
served
indirectly
the
to
United States
widespread
-
3-
public confidence in a payment system that is quick,
efficient.
The
well-suited
to
industry.
system
Federal
the
This
spread
Reserve's
structure
country has
over
wide
of
banking
differing
the
areas
with
role
States
is
financial
fractionalized
different
and
banking
types
of
savings institutions and credit
payments
organization holds
United
a h i ghly
institutions— commercial banks,
unions— having
participatory
sure,
more
needs.
than
No
four
one
percent
private
of
total
deposits or offers deposit services in all regions.
If
and
when
generalized
structural
interstate banking are authorized,
rationale
payment
for
a
Federal
mechanism
consideration
as
will
it
is
Reserve
today.
such
as
the underlying public p o l ic y
operational
continue
changes
to
be
Then,
as
as
presence
in
important
now,
the
the
a
Federal
Reserve can be expected to bring to payments markets an overall
concern
for
efficiency,
relating
to
safety
and
soundness,
and equitable access.
integrity,
efficiency
promotion
Indeed,
and
of
operating
those considerations
access
to
the payment
mechanism will remain at the core of the Federal Reserve's role
and
responsibilities
regarding
the
operation
of
the
payment
mechanism.
Integrity of the Payment System
A reliable payment
system is crucial
growth and stability of the nation.
to
the economic
The smooth functioning of
markets for v irtually every good and service is dependent upon
4-
-
the smooth functioning of banking and
financial markets,
which
in turn is dependent upon the integrity of the nation's payment
mechanism.
of
History
tells
a country's payment
general
economic
us— all
too vividly— that
system can precipitate or
crisis.
The
breakdown
of
intensify
the
to
precipitate
the
creation
System— is a case in point.
a
relatively
I.D.,
Herstatt,
payments
More recently,
German
and
the
the
financial
consequent
disruption
in
clearly demonstrated
dramatic rippling effect,
the
uncertainty
Bankhouse
regarding
temporarily caused
States
financial
payment
failures
via the payment
Reserve
the 1974 failure of
institution,
United
that
1907— which
Federal
through private clearing networks,
substantial
This
small
of
a
payment
machinery in the United States during the panic of
helped
fragility
system,
system.
can hav e
a
to financial
institutions in all parts of the world.
The value
private concern
of
funds
transferred
is
and
ongoing
p articipation
p ayment mechanism enhances
example,
the
transfer
service
institution
institutions.
large
that
is perceived as able adequately to ensure
integrity and reliability of the system.
direct
so
Federal
could
the
The Federal Reserve's
the
final
risk
rapidly
The current effort
large dollar payment networks
the
operation
of
the
integrity and reliability.
Reserve's
reduces
be
its
in
no
irrevocable
that
failure
transmitted
to control
to
For
Fedwire
of
one
other
intraday risk
on
is another example of a Federal
-
Reserve initiative,
5-
in conjunction wit h the private sector,
to
enhance the integrity of the payment system.
Efficiency of the Payment System
Federal
Reserve
involvement
in
the
payment
system
promotes efficiency for a variety of reasons.
The Federal
in seeking
to stimulate
payment mechanism.
other
Reserve has
providers
a public
improvements
of payment
mechanism
has the know-how to contribute
to help
ACH.
that
Federal
promote
involve
Reserve
appropriate
for
cooperation
among
introduction
and
Moreover,
to develop
implementation.
it
This
is
significant payment mechanism
substantial
involvement
depository
Because of
in the payment mechanism,
their
advancements
and
resources,
may
that
also
require
institutions
implementation of
be
such
as
the
particularly
widespread
(for
MICR encoding
example,
of
checks).
Federal Reserve involvement as a neutral and trusted
intermediary
improve
the
to such advancements as well as
particularly true in the case of
advancements
services
in technology and procedures.
its day-to-day operating presence
ability
in the efficiency of
The Federal Reserve has worked closely with
utilize advancements
the
interest motivation
may
facilitate
the efficiency of
efficiencies
result
from
acceptance
the payment
the
scope
of
participation in the payment mechanism.
of
innovations
mechanism.
the
Federal
that
Additional
Reserve's
6-
-
As Congress anticipated in the Monetary Control Act of
1980,
competition
b etween
the
Federal
Reserve
and
other
providers of payment services has resulted in a more efficient
payment
system.
Both
the
Federal
suppliers have b ee n
prompted b y
three years
the
to
trim
cost
Reserve
and
other
competition during
of
processing
service
the
payments
last
and
to
improve the q uality of the services offered.
It
efficiency
advances
is
recognized
are
in
most
that
likely
electronic
to
further
come
gains
from
technology.
the
These
institutions
impediment
to
electronic
payments,
the
regardless
conversion
of
however,
of
gains
size
the
will
of
become
available to all
or
paper-based
is
payment
application
more widespread as the new technology becomes
depository
in
location.
An
payments
significant
to
float
advantage enjoyed b y some
initiators
of paper-based payments.
To
advantage
and
eliminate
shift
the
part of
this
to electronic payments,
past
two
including
years
checks
locations.
in checks
the
accelerated
drawn
on
thus
Federal
the
institutions
are
now
being
at
collected
spur
Reserve has
collection
As a result of these efforts,
daily
h elp
of
the
during
checks,
relatively
remote
more than $3 billion
and
pai d
one
day
quicker than was the case previously.
Provision
of
Payment
Services
to
All
Depository
Institutions
Federal Reserve payment
depository
institutions,
services are available
including
smaller
to all
institutions
in
7-
-
remote
locations
serve.
Under
services
that
the
available
other
Monetary
to
providers
Congrol
depository
might
Act,
in
choose
making
institutions,
not
to
payment
the
Federal
Reserve is to give due regard
to the provision of an adequate
level of services nationwide.
Since implementation of the Act,
the
Reserve
Banks
have
opened
services to nonmember banks,
access
mutual
currently handle
paper
and
Federal
Reserve
savings banks,
savings and
Furthermore,
the Reserve
loan associations and credit unions.
Banks
to
electronic
items
that
are
destined for over 20,000 depository institutions.
The
Federal
Reserve
payment mechanism services
also
stands
ready
to
to troubled depository
provide
institutions
that other providers of payment services may not serve because
of the risks involved.
This helps
of a depository institution
not trigger
to make
its insolvency and
can be resolved
to ensure that the inability
or process payments
will
that the institution's problems
in an orderly fashion with minimum disruptive
effects.
Fiscal Agency Functions
In
addition
to
depository institutions,
provides a variety of
Treasury
creation,
and
other
the
payment
the Federal
Reserve,
services on behalf of
government
safekeeping,
evidencing ownership of
governmental payments.
services
and
agencies.
transfer
of
provided
as fiscal agent,
the United States
These
include
book-entry
the public debt and
to
the
records
the processing of
8-
-
To
the
extent
that
the
facilities
and
expertise
required to provide these services can be used to produce other
similar
services
for
depository
efficiencies result.
services
are
institutions,
In addition,
supplied
to
the
paper and electronic payment
Treasury
and
other
agencies at lower costs than would be possible
opportunities
for
the
Federal
production
Reserve
also
government
if there were no
to
offer
these
services to depository institutions.
II.
Criteria for Federal Reserve Services
In offering payment services,
satisfy
Act:
the
cost
in the
long
recovery
run
objective
aggregate
the Federal Reserve must
of
the
revenues
Monetary
Control
should match
costs.
The Federal Reserve is currently achieving this objective.
In addition
specified
to the
in the Monetary Control Act,
adopted b y
the
Board
of
Governors
stringent
objective
of
operating
and
costs
capital)
aggregate
for
float
each
full
service
cost
and
in
cost recovery objective
the pricing
1980
recovery
imputed
line.— ^
added
the
more
(including
taxes
Based
principles
on
and
more
all
return
than
on
two
years of experience with the provision of priced services,
internal objective of cost
recovery
at each
b een elaborated to provide that revenues
must cover all operating costs,
1/
service
for each
float costs,
this
line has
service
line
and certain
See Appendix for details on calculation of costs and fees.
-
imputed
costs
such
as
the
9-
cost
of
interest
on
short-
and
long-term debt as well as make some contribution to the pre-tax
return on
equity.
Thus,
each service
line must be
at
least
marginally "profitable" and all service lines combined must,
the aggregate,
PSAF.
At
transfer
present,
and
service
cover
net
lines
objective.
the
float costs,
collection,
settlement,
meeting
and
the
this
commercial
this objective,
Only
costs,
check
are
The
all
ACH
cash
secondary
service
securities
the overall
services,
book-entry
cost
line
after taking into account
definitive
and
is
wire
securities
recovery
also
meeting
the planned
safekeeping
in
and
subsidy.
noncash
collection service line is not presently meeting this objective.
Federal Reserve objectives are established in terms of
cost recovery rather than targeted volume.
Circumstances might
materialize that could jeopardize the Federal Reserve's ability
to
meet
include
its
cost
changing
institutions.
be
improved
recovery
technology
to be
simply
objectives,
more
into
cannot
the
appropriateness
taking
and
Such
responsive
Federal
of
the
expected
to
Reserve
would
continuing
account
to
its
to
other
depository
market,
meet
provide
of
such developments can
If it becomes clear,
be
circumstances
consolidation
If a service experiencing
continue to be offered.
service
objectives.
it
however,
cost
the
that the
recovery
reassess
objectives,
would
the
service
including
after
the
requirement of providing equitable access and an adequate level
of
services
nationwide.
For
example,
several
Reserve
Banks
10 -
-
have stopped offering the cash transportation
where an adequate level of
this service
service
in areas
is otherwise provided
b y the private sector.
Failure
result
from
an
providers.
Federal
to
meet
aggressive
Because
Reserve
the
to give
decision would have
continuing
cost
recovery
pricing
Monetary
policy
due regard
the
service
by
corrected.
service
some
In any event,
that could
objectives
temporary
would
not
be
by
the
Federal
there were clear public benefits
comment
course of action.
Similarly,
particular
line
giving
due
the
factors,
shortfall.
that
expected
which
way
the
a
The
that
shortfall
could
be
any decision to continue to provide a
soliciting public
orderly
directs
the public benefits of
situation
after
service
service
if the revenue
reasonably be
made
Act
also
to provide a service
did not meet cost recovery objectives
caused
other
to competitive
justify
Federal Reserve might also continue
was
of
Control
to be made whether
to offer
objectives -may
Reserve
and only
regard
have
to
these
Board
only
in
associated with such a
to be
the
meet
in circumstances
any decision
would
to
to withdraw from a
undertaken
transition
in
an
problems
associated w i t h the discontinuation of service offerings.
The
Federal
Reserve's
operational
presence
in
the
payment system can be expected to change as the payment system
evolves.
Technological developments are likely to be
important
influence,
increased
interstate
but
changes
banking,
also
the
can
be
creative
the most
expected
efforts
from
of
-
individual
depository
11 -
institutions,
participants in the payment system,
the
entry
of
new
and developments in law and
regulation accommodating these and other changes.
As
the
Federal
Reserve
introduces
major service enhancements in the future,
new
services
all of
or
the following
criteria must be met:
(1)
The Federal Reserve must expect to achieve
recovery of costs over the long run.
(2)
The Federal Reserve must expect its provision of
the service to yield a clear public benefit,
including, for example, promoting the integrity
of
the
payment
mechanism,
improving
the
effectiveness of financial markets, reducing the
risk associated with payments and securities
transfer services, improving the efficiency of
the payment mechanism or reducing the use of real
resources such as throuah the introduction of new
technology.
(3)
The service should be one that other providers
alone cannot be expected to provide with
reasonable effectiveness, scope, and equity.
For
example, it may be necessary for the Federal
Reserve to provide a payment mechanism service to
ensure that an adequate level of the service is
provided nationwide or to avoid undue delay in
the development and implementation of the service.
The
Federal
p osition carries with
Reserve
recognizes
that
it unique responsibilities,
willingness to cooperate with other providers
payment mechanism and
fairness.
analysis,
underlying
These
a fundamental
unique
be viewed as
its
an
extension
responsibility
soundness of, and improving,
for
of
must,
the
preserving
unique
including
a
in improving the
commitment
responsibilities
full
to competitive
in
Federal
the
the payment system.
the
final
Reserve's
safety
and
-
III.
Possible Payment System Improvements
The
Federal
payment mechanism.
by
12-
some
depository
Federal
Reserve
Reserve
is
In this regard,
institutions
introduce
and offer new services
system.
In
before
such
such
cases,
enhancements
others
improving
in
enhancements
that will
further
and
to
the
interest has b een expressed
and
major
services
all
committed
to
improve
study will
services
having
could
be
the
existing
the payment
be
required
offered
for
public comment or for implementation.
Among other things,
feasibility,
particular
regarding
cost and
such study will focus on technical
benefits,
initiative
with
the
the payment mechanism,
initiative with
the
three
the compatibility
Federal
and
criteria
might
independently
best
or
be
acting
developed
for
new
by
jointly with
are
Reserve believes
year or
several
warrant
service
Federal
depository
as was
particular
areas
the
service offerings
that
attention
These
Reserve
institutions
the case with
MICR encoding of checks and the introduction of ACH.
there
mission
in this paper.
the
and other providers of payment services,
in mind,
the
the compatibility of
and major service enhancements specified
services
Reserve's
of
the
over
W i t h this
Federal
the
next
two. Th e y include:
Minimization of the costs and the time associated
with the h a n dling
and processing of
return
items.
Initiatives in this area may
entail
certain short term efforts such as notification
of the institution of first deposit of large
dollar return items along the lines proposed by
the Board
in June
1984.
Long
term efforts m a y
-
13-
require the application of new and higher
technology to return item processing as well as
continued efforts to accelerate the collection of
checks more generally.
°
In part related to improvements in the return
item process, efforts to speed up the collection
of checks as well as eliminate some of the
physical handling of paper b y applying electronic
technology to the existing paper-based system.
Some form of check truncation, for example,
appears to be a logical step in the progression
toward electronic payments.
Book-entry service for selective and limited
classes
of securities not presently
held in
b ook-entry form, such as municipal securities,
might offer attractive economies while improving
security and the payment flow.
The Federal
Reserve
could provide access to a number
of
institutions that might not have access to
existing alternatives.
Enhancements to existing electronic services,
including
improved
electronic
delivery
and
security of payments.
*
The payment
*
*
*
system will
*
continue
to evolve,
adopting
new technologies and creating new risks and opportunities.
Federal Reserve has an important role as a participant
evolution.
As
opportunities
services
to
within
such,
the
improve
Federal Reserve
existing
the framework
of
services
will
or
satisfying
The
in that
seek
offer
new
its
responsibilities to promote the integrity and efficiency of the
payment
system,
nationwide,
providing
an
adequate
level
of
services
and serving the long range interests of the economy.
APPENDIX
Methodology for Computing Federal Reserve Bank Costs and Fees
In accordance with the Monetary Control Act, the Federal Reserve
establishes prices for its payment services in order to recover costs and
a private sector adjustment factor (PSAF).
The PSAF is an allowance for
the taxes that would have been paid and the return on capital that would
have been provided had the Federal Reserve's priced services been furnished
by a private sector firm.
Costs for providing services are derived from the Federal Reserve's
Planning and Control System (PACS).
PACS is the uniform financial accounting
system Reserve Banks use for determining the full costs of fulfilling their
four basic areas of responsibility: Monetary Policy, Supervision and Regula
tion, Treasury, and Financial Institutions and the Public (the latter includes
both priced and non priced services).
The system was developed in the mid-
1970's to serve as a cost accounting system, similar to systems used in
the private sector, and also to serve as a vehicle for evaluating the costeffectiveness and relative efficiency of Reserve Banks.
PACS provides the Federal Reserve with an important management
tool for budgeting and expense control by ensuring that similar expenditures
are recorded by Reserve Banks in the same way and that all Reserve Banks post
and report operating expenses under a set of common and uniform definitions.
Like most expense accounting systems used in the private sector,
expenses under PACS are classified by type or "object" of expense, such
as salaries, supplies, equipment and travel, and the reason or "output"
-
2-
to which the expense is related, such as fiscal service to the Treasury
or the provision of check collection services to depositing institutions.
Classification of expenses by type enables the Federal Reserve to collect
necessary information for external and internal financial reporting and
control purposes.
Classification of expenses by reason or output enables
Federal Reserve management to analyze the overall costs of Reserve Bank
operations in terms of on-going service responsibilities, the programs
instituted to fulfill these service responsibilities, and the basic
activities or processes included in the provision of each service.
Within each area of responsibility ("service line") there are sub
sidiary "services".
The "Services to Financial Institutions and the Public"
service line, for example, encompasses priced services such as commercial
check, electronic funds transfer, securities and non-cash collection.
Within
each of these subsidiary services, PACS identifies specific "activities"
which reflect the basic operations or processes within the services.
PACS classifies all costs into three categories:
direct costs,
support costs and overhead costs.
Direct costs are those costs directly
attributable to a given service.
Support costs are those costs, such as
computer programming and building maintenance that, although not directly
used in priced service operations, are required to support such activities.
All support costs are fully charged to the benefiting activities on a usage
basis.
Overhead costs represent all remaining Federal Reserve costs that
cannot be charged directly to an output service on a usage basis.
Examples
of overhead functions include personnel, protection and budget control.
-
3-
Overhead costs are allocated to benefiting services based upon formulas
that reflect relative usage.
Each year, all Federal Reserve fees are reviewed and revised,
if necessary.
the year.
The annual review takes place during the third quarter of
Each Reserve Bank forecasts its costs and volumes for each
priced service for the upcoming year.
Included in the cost estimate is
all direct, support, overhead, and float costs that are to be allocated
to each priced service line.
The cost and volume estimates are based on
a combination of historical experiences and projections.
At the same time,
the Federal Reserve calculates a proposed PSAF for the year.
Services that
have Systemwide uniform prices are based upon the aggregate cost and volume
estimates of the 12 Reserve Banks.
Fees for other priced services (check,
safekeeping, etc.) are based upon cost and volume estimates of the individual
Reserve Banks.
The proposed fees of the Reserve Banks are reviewed by the System's
Pricing Policy Committee and the staff of the Board of Governors.
The purpose
of the review is to ensure that the cost and volume estimates are reasonable,
the PSAF calculation is consistent with System guidelines, and that proposed
prices meet the cost recovery policies of the Board of Governors.
the Board of Governors reviews the proposed prices and PSAF.
Finally,
August 14, 1984
STANDARDS RELATED TO PRICED SERVICE ACTIVITIES
OF THE FEDERAL RESERVE BANKS
I.
Background
Since 1913,
the Federal Reserve has performed
role as b oth an operator
in and
a regulator
of
a dual
the nation's
payment mechanism.
Over the last 70 years— and as recently as
1980— Congress
reaffirmed
Reserve.
has
this
role
The Monetary Control Act of
of
1980
the
(MCA)
Federal
has
the Federal Reserve's role b y requiring the Federal
provide
its
equitable
services
basis,
to
taking
all
depository
into
account
expanded
Reserve
institutions
the
need
to
on
ensure
to
an
an
adequate level of services nationwide.
The Federal Reserve has exercised care to avoid actual
or apparent conflict b etween its role as a provider of services
and
its role
the
Federal
promote
Reserve
the
mechanism.
as a regulator,
As
depository
basis.
manner
Federal
that
careful
integrity
exercises care
all
is
an
and
Reserve
services.
Moreover,
safeguards
that
of
that
institutions
on
ensure
this,
an
actions
to
there are
that
and lender.
that
of
the
its
the
Further,
actions
payment
Federal
Reserve
it provides payment services
fairness
ensure
to
efficiency
extension
to ensure
ensures
supervisor
equitable
are
also
other
and
in place external
these
impartial
implemented
providers
objectives
are
to
of
and
in
a
payment
internal
achieved.
-
Externally,
directly
the
and
safeguards
through
statutory controls.
provided b y
all
include
the
General
congressional
Accounting
oversight,
Office,
and
An additional level of external review is
the public
significant
2-
Board
include oversight b y
through
the opportunity
proposals.
the Board
The
of
to comment on
internal
Governors
safeguards
and
Reserve
Bank
boards of directors through various means,
including use of the
Board examiners and
auditors.
the
Federal
conduct of
Reserve
Reserve
itself
Bank
internal
imposes
restrictions
its employees--restrictions
intended
Finally,
upon
the
to avoid
even
the appearance of impropriety.
To
paramount
ensure
in
further
providing
that
priced
its
public
services
interest
under
the
role
is
MCA,
the
responsibility
for
following additional standards have been adopted.
II.
Standards
A.
Organization and Operations
1.
No
Reserve
priced
Bank
services,
President
or
responsible
unless
First
Vice
with
acting
in
the
President,
for m o n et a r y policy,
lending areas.
policy
personnel
bank
capacity
will
also
of
be
supervision,
or
Priced service personnel will not make
decisions
affecting
monetary
supervision or lending matters.
policy,
bank
Branch managers m ay administer p oli cy decisions
Reserve
Bank
in
the
lending
area but
m ay
not
of a
make
policy decisions in this area.
Federal
Reserve
institution
lending
in
actions
the
functions
institution
will
relative
to
monetary policy,
involving
be
made
a
depository
supervisory,
a particular
without
or
depository
regard
to
whether
that institution is a user of Reserve Bank services or
is an alternative provider of such services.
Except for the President,
manager,
or
Reserve
Bank
bank
persons
Federal
acting
personnel
supervision or
Reserve
personnel
involved
these
capacities.
in monetary policy,
lending
function may discuss
the
institution only where
in
branch
involved
priced
responsibilities.
First Vice President,
services
with
necessary
W ith
the
in
priced
to
a
depository
carry
exceptions
services
out
their
noted
may
above,
discuss
matters relating to monetary policy, bank
supervision,
or
only
lending with a depository
the information discussed
institution
is general
in nature
where
or
is
public.
Reserve
bank
Bank
personnel
supervision or
involved
the
lending
in
monetary policy,
function may
confidential
information
their duties
to Reserve Bank priced services personnel
only
such
where
action
obtained
fulfills
in
an
the
provide
course
important
of
4-
-
supervisory objective,
p ayment
mechanism
Reserve
Banks.
provided on
or
In
preserves
protects
such
the integrity of
the
cases,
assets
of
information
a need-to-know basis
and
the
the
will
be
only w ith
the
approval of senior management.
B.
Business Practices
1.
All
activities
incident
to
the provision
of
services will be conducted
in a manner
consistent with
role and responsibilities
the public
that
priced
is fully
of the Federal Reserve.
2.
Federal Reserve services will be offered on a fair and
equitable
basis
to
all
depository
similar terms and conditions.
be
in accordance w ith
institutions
on
The prices charged will
the requirements of
the MCA as
implemented by policies of the Board of Governors.
3.
Reserve
Banks
will
provide
full
and
accurate
information regarding the provision of Federal Reserve
services,
operating
including
features,
requirements,
institutions
to make
to
quality,
enable
prices
and
depository
informed decisions.
Comparisons
of its services w ith those of other providers will .be
fair and objective.
4.
When
introducing or
revising
will announce such changes
that
will
ensure
that
services,
Reserve Banks
to the public
communications
in a manner
reach
all
-
interested depository
5-
institutions
in sufficient
time
to enable them to make appropriate adjustments.
III.
Internal Oversight
The primary responsibility for assuring that the above
standards are applied
Reserve Bank.
that
these
is entrusted
Accordingly,
standards
are
to
clearly represented
in Reserve
oversight of business conduct
Bank's internal audit function.
Reserve
Bank
each
maintains
Bank
Consistent with its overall
each Reserve Bank's board of directors,
each
of
Reserve Bank management will ensure
policies, procedures and controls.
responsibilities,
the management
is provided by
principally through the
The internal audit function of
independence
from
operating
management b y reporting directly to the Reserve Bank's board of
directors.
Oversight of Reserve Bank priced service activities is
also
carried
out
by
the
Board
of
Governors.
This
accomplished through review and approval at the Board
price
and
priced
service
service
level
changes.
activities
are
Furthermore,
evaluated
in
is
level of
Reserve
Bank
conjunction
with
on-site reviews by the Board's operations review and financial
examination
ensures
staffs.
that
Reserve
Board
Bank
oversight
activities
through
these
means
are consistent with
the
MCA and with Board policies with regard to priced services.
addition,
Board's
the
Board
Federal
member
Reserve
serving
Bank
as
the
Activities
Chairman
Committee
of
the
is
In
-
responsible
for
6-
investigating
and responding to
concerning actions of Reserve Bank personnel
to
be
inconsistent
with
Currently,
Vice
capacity.
Accordingly,
the
Chairman
standards
complaints
that are
presented
Preston Martin
alleged
above.
serves
in
inquiries concerning Reserve
this
Bank
actions may be directed to Vice Chairman Martin's attention.
The
internal
audit
and
Board
examination
focus on Reserve Bank compliance with policies,
controls,
service
including
standards
activities.
encompasses
structure
Audit
activities
and
and
staffing,
allocation of costs,
of
and
conduct
functions
financial
procedures and
related
examination
such
as
to
priced
attention
also
organizational
accounting and
information flows,
activities
reporting,
and associated internal
controls.
IV.
Conclusion
It
is the poli c y and practice of
System to conduct
maintain
the
effective
Federal
its affairs
integrity
-discharge
Reserve
Federal Reserve
and
credibility
its
p u blic
of
believes
address questions
in a manner
that
of potential
to fulfill
these
the Federal
that will
essential
serve
to
responsibilities.
standards
conflicts
Reserve
to
the
The
effectively
while permitting
its public responsibilities
in
the
the
provision of services to the nation's depository institutions.
@FedFRASER