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FEDERAL RESERVE BANK
OF NEW YORK
r Circular No. 9 4 3 3 ~
1
h December 30, 1982 J
FEDERAL RESERVE SERVICES
— Program To Accelerate Check Collection
— Revised Fee Schedule for Cash Transportation
— Private Sector Adjustment Factor
To All Depository Institutions in the Second
Federal Reserve District, and Others Concerned:
Following is the text of a statement issued by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board has approved a program to accelerate the collection of checks by the
Federal Reserve System.
The Board also:
(1 ) Approved a new revised schedule of fees for the transportation of currency and coin to
depository institutions and
(2 ) Adopted a private sector adjustment factor (PSA F) of 16 percent as an elem ent in the pricing
of its services in 1983 (unchanged from the 1982 PSA F).
As adopted, the program for speeding up check collection includes a number of changes made in
response to comment received on a proposal published in August. The main elem ents of the program
as adopted are:
1. Reserve Banks will have checks available for presentm ent1 (or dispatch) to paying institutions
no later than 12:00 noon local time. The transition to later presentm ent will be accom plished in two
steps: first, on February 24, 1983, presentm ent will be m oved to 11:00 a.m.; and on May 2, 1983, it
will be moved to 12:00 noon.
2. The later presentm ent policy program will be applied to RCPC and country paying institutions
that receive a substantial dollar value of checks. Further, deposit deadlines for checks drawn on high
dollar RCPC and country institutions will be extended beyond the deadlines that were originally
published by the Reserve Banks. Generally, these deadlines will be comparable to the deadlines for
checks drawn on city institutions.
3. Each Reserve office’s later deposit deadlines will be m ade available to all depositors —
intraterritory institutions, institutions that direct send to other Federal Reserve offices, and institutions
using the Federal Reserve’s ITS network.
Other elem ents of the program, and its im plem entation schedule, are set forth in the attached notice.
It is estim ated that under this program at least $3 billion of checks handled by the Federal Reserve
w ill be cleared a day earlier.
The new collection program will be put into effect in stages from February 24 through July 1, 1983.
The Reserve Banks w ill notify depository institutions, at a later time, of the details of the program.
1 Presentment indicates the time that Reserve offices will present checks at clearinghouses or make them available for pick-up
at the Reserve office. Where deliveries must be made to city institutions outside a clearinghouse, delivery will be made as close as
possible to these hours.
(over)
In adopting the program, the Board said:
Implementation of the Reserve Banks’ proposal to accelerate the collection of checks, with the
modifications that have been made, should provide substantial benefits to depository institutions and
to the public. The program will improve the availability of funds to depository institutions and
permit them to make funds available more quickly to their customers. Additionally, this program
should encourage the use of electronic payment systems, since it should result in reduced check
collection float.
The Federal Reserve conducted a comprehensive review of the 557 comments received. Most of the
comment supported the objectives of the proposal to accelerate the collection of checks. Support was
received on the specifics of the program from 255 commentators, and 35 others approved the program
in part.
The private sector adjustment factor (PSAF) of 16 percent adopted by the Board for inclusion in
Federal Reserve pricing in 1983 assumes an average cost of capital during the year of 16.3 percent. Other
factors in calculating the PSAF are the book value of related Federal Reserve assets and related financing
expenses. Details of the calculation of the PSAF are available from the Reserve Banks or the Federal
Reserve Board.
The fees for Federal Reserve cash transportation in 1983 will be higher than in 1982, but will not
yet recover full costs, in order to provide institutions with a transition period before the Federal Reserve
establishes a fee schedule that recovers full costs. Details of the new cash transportation services fees are
set forth in the attached Board notice of its actions.
In co n n ectio n w ith th e n ew ch eck co llectio n program , this Bank w ill distribute ch eck collection
service and fee sch ed u les for intraterritory deposits, and for direct-send and consolid ated-sh ipm en t
interterritory d eposits, on or about January 17, 1983. T h ese sch ed u les w ill provide depository in stitu
tions in this D istrict w ith th e details on d ep osit dead lin es, fees, and credit availability under the
program app roved b y th e B oard of G overnors to accelerate th e co llectio n of checks. A ny questions
on th e ch eck co llectio n program m ay b e d irected, if you are in this B ank’s H ead Office territory, to
Jam es O. A ston, V ice P residen t (T el. N o. 212-791-6334) or John F . Sobala, A ssistant V ice P resident
(T el. N o. 21 2-79 1 -5 9 9 7). In th e B uffalo B ranch territory, such qu estions shou ld b e directed to Peter
D . L u ce, A ssistant V ice P residen t (T el. N o. 716-849-5013) or R obert J. M cD on n ell, O perations Officer
(T el. N o. 7 1 6-84 9 -5 0 2 2).
T his D istrict’s fee sch ed u les for currency and coin transportation, w h ich w ill b ecom e effective on
F ebruary 1, 1983, w ill b e distribu ted to depository institutions on or about January 10, 1983. Q uestions
relatin g to th e fe e ceilin g s ad op ted b y th e Board o f G overnors for this service shou ld b e directed, at
our H ead O ffice, to Joseph P. B otta, A ssistant V ice P resident (T el. N o. 212-791-7928) or, at our Buffalo
B ranch, to P eter D . L u ce, A ssistant V ice P resident (T el. N o. 716-849-5013) or H arry A. C urth, Jr.,
O perations O fficer (T el. N o. 716-849-5018).
Q u estions regarding th e private sector adjustm ent factor shou ld b e directed to M arcos T. Jones,
M anager of our P ricin g A dm inistration D ep artm en t (T el. N o. 212-791-8047).
E n closed , for d epository institutions in this D istrict, is a cop y of th e B oard’s official notices regarding
th e ch eck collection acceleration program and th e transportation of currency and coin. T he n otices
w ill b e p u b lish ed in th e F ed era l R eg ister, and add ition al copies m ay b e ob tain ed from our Circulars
D ivision (T el. N o. 2 1 2-79 1 -5 2 1 6).
A nthony
M.
Solomon ,
P residen t.
FEDERAL RESERVE SYSTEM
(Docket No. R-0414)
MODIFICATIONS TO FEDERAL RESERVE BANK CHECK COLLECTION SERVICES
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Approval of proposal to modify Federal Reserve Bank check
collection services.
SUMMARY:
The Board of Governors has approved a proposal of the
Federal Reserve Banks to modify their check collection services.
The
program will extend the times during which checks may be deposited at
Federal Reserve offices and the times at which checks are presented to
certain paying banks.
EFFECTIVE DATE:
February 24, 1983. On that date, Reserve Banks will
begin implementing new fee schedules, deposit deadlines, and funds
availability schedules for check collection services.
The program
will be implemented over a five month period.
FOR FURTHER INFORMATION CONTACT:
Elliott C. McEntee, Assistant
Director (202/452-2231), or Florence M. Young, Program Manager
(202/452-3955), Division of Federal Reserve Bank Operations;
Gilbert T. Schwartz, Associate General Counsel (202/452-3625),
Daniel L. Rhoads, Attorney (202/452-3711), or Joseph R. Alexander,
Attorney (202/452-2489), Legal Division, Board of Governors of the
Federal Reserve System, Washington, D.C.
20551.
SUPPLEMENTARY INFORMATION:
On August 4, 1982, the Board requested
comment on a proposal by the Federal Reserve Banks to improve the
speed and efficiency of the nation's payments mechanism by modifying
the Federal Reserve System's check collection procedures.
47 F.R.
34190 (August 6, 1982). The proposal presented an integrated plan (1)
to extend the deadlines for depositing checks for collection at
Federal Reserve offices and (2) to extend the times at which Federal
Reserve offices present checks to certain paying institutions. Under
the proposal. Reserve Banks would accept checks three to five hours
later from depository institutions using the Federal Reserve's
Interdistrict Transportation System ("ITS"). As a result of extended
deposit deadlines, depository institutions would have a longer time to
process checks and receive improved funds availability for such checks.
Under the proposal, the earliest final presentment time for
checks drawn on depository institutions located in Federal Reserve
cities would be established at 12:00 noon local time. Later
presentment might also be implemented for institutions located outside
of Federal Reserve cities that receive a substantial dollar value of
checks each day and where special arrangements are warranted.
The
[Enc. C ir. No. 9433]
-
2-
proposal also stated that Reserve Banks were considering development
of special services, such as providing the MICR line data from checks
on computer tape or providing account information and dollar totals to
payors, in advance of the presentment of the checks where requested by
the paying bank.
The Reserve Banks informed depository institutions of the
proposed changes to the Reserve Bank's check clearing services in May
and June, 1982.
Subsequently, the Board determined that it would be
desirable to request public comment to assist it in evaluating the
Reserve Banks' proposal.
Shortly after the proposal was published for comment, to
assist interested parties in evaluating the proposal, the Reserve
Banks distributed the fee schedules and deposit deadlines that they
planned to implement if the proposal were adopted. A comprehensive
proposal for eliminating and pricing Federal Reserve float was
published for public comment also.
47 F.R. 50342 (November 5, 1982).
A. Comments and An a l y s i s . A total of 557 comments were
received on the proposal. Most of the commenters supported the
overall purpose of the proposal to accelerate the collection of
checks.
The specific proposal received general support from 255
commenters.
Thirty-five commenters supported a portion of the
proposal but expressed reservations about certain of its aspects.
hundred sixty-seven commenters opposed the proposal.
Two
Support for the proposal was received primarily from smalland medium-sized commercial banks, savings and loan associations,
credit unions, consumers, and several trade associations representing
these parties.
In addition, 20 correspondent and city banks concurred
with the proposal.
These commenters believed that if the proposal
were implemented it would speed up the collection of checks and would
benefit most depository institutions and their customers.
The types
of improvements that were anticipated included:
(1) increased
collected deposit balances; (2) reduced levels of check clearing
float; and (3) expedited returns of unpaid checks.
Further, many
depository institutions mentioned that they would benefit from the
increased competition among providers of check collection services.
Objections to the proposal were raised primarily by banks
located in Federal Reserve cities, larger correspondent banks located
outside of Federal Reserve cities, small depository institutions that
are dependent upon third-party processors, non-financial companies,
and air couriers.
The concerns expressed by these commenters
generally fell into three broad categories— the operational
ramifications of the proposal, the impact on competition among
depository institutions, and the impact on competition between the
Reserve Banks and correspondent banks.
-3(1) Operational co nc er ns. Commenters opposed to the proposal
raised several operational concerns.
Some commenters stated that
later presentment of checks to city and selected RCPC and country
institutions!/ would disrupt current internal processing schedules,
necessitating additional staff and equipment, and make the calculation
of reserve positions more difficult. A number of commenters also
stated that later presentment would disrupt the cash management
services provided to corporations and services provided to smaller
depository institutions, such as demand deposit accounting and account
balance reporting.
It is recognized that implementation of a policy to present
or dispatch checks to paying institutions located in Federal Reserve
cities later would be a departure from the practice of most Federal
Reserve Banks to present checks within the time frames established by
local clearinghouse associations.
However, the Board does not believe
that the later presentment times proposed by the Reserve Banks would
represent a substantial change from current practice.
First, the
final presentment times established by a majority of clearinghouse
associations located in Federal Reserve cities range from 10:00 a.m.
to 11:30 a.m. local time, which are close to the proposed times.
Second, the Reserve Bank's current practice of making earlier
"courtesy" presentments would not change.
Studies also indicated that large correspondent banks make
extensive use of direct presentment of "on us" checks.!/ An
analysis of availability schedules for a sample of banks demonstrated
that some correspondent banks have as many as 200 direct-send
relationships with depository institutions throughout the country.
Currently, deadlines for "on us" presentments are usually the close of
the business day for "over-the counter" (teller) transactions, which
is typically 4:00 p.m. Based on these findings, it appears that many
depository institutions already have made, and are willing to make,
operational adjustments in order to derive the benefits that can be
realized by accelerating the collection of checks.
Only a few commenters submitted estimates of the impact of
the proposal on their operating costs.
It appears that their
responses were based on the assumption that a large number of the
checks presented to them would be received at 12:00 noon.
Since the
Reserve Banks would continue to make earlier courtesy presentments,
such that only a small proportion of checks presented for payment will
1/ RCPC institutions are depository institutions located in areas
designated as RCPC zones which are outside Federal Reserve office
cities. Country institutions are depository institutions located
outside Federal Reserve office cities and RCPC zones.
2/ "On us" checks refer to those checks drawn by customers on the
paying institution.
-4-
be received by these institutions later, these estimates generally
were not helpful in evaluating the effects of the proposal.
While reserve account charges for check presentments are an
important element in the calculation of an institution's reserve
position, the dollar value of the charges is only a small proportion
(about 10 percent) of total reserve account charges.
Therefore,
effecting the charge somewhat later in the day to the institution's
reserve account for checks presented to it should not pose a major
problem.
Additionally, depository institutions are able to adjust
their reserve positions until 6:30 p.m., Eastern time, when the
Fedwire closes.
The potential of the proposal to disrupt the provision of
cash management services to corporate customers was also considered.
After considering the comments on this issue, the Board determined
that the program should not have any significant disruptive effect
upon the provision of such services or on financial markets.
To the
extent that there is any effect, the Board believes that it would be
temporary until the markets have had an opportunity to adjust.
Further, the impact of later presentment will be minimized by the
provision of special services for payor banks (such as providing MICR
line data on computer tapes or providing balance information) that
Reserve Banks are developing.
These services and courtesy
presentments should also help alleviate the impact of later
presentment times on service bureaus and correspondent banks that may
choose to modify their processing schedules.
In addition, the
6:30 p.m. Fedwire cut-off time should provide institutions with ample
time to sell or purchase funds.
(2) Competition among depository institutions. Some
commenters also expressed concern that the proposal would disrupt
current patterns of competition among different classes of depository
institutions.
Specifically, some commenters expressed their belief
that later presentment to city institutions that provide corporate
disbursement services could result in a competitive disadvantage to
those institutions unless a similar change were made in the
presentment times for RCPC and country institutions that may provide
similar corporate services.
Further, it was stated that later
presentment to selected RCPC and country institutions that provide
corporate disbursement services would result in a competitive
advantage to other RCPC and country institutions in the same region.
The program has been modified to take these comments into
account.
In order to assure that non-city institutions do not obtain
an unfair advantage, later presentment will be applied to RCPC and
country paying institutions that receive a substantial dollar value of
checks.
Further, deposit deadlines for checks drawn on these
institutions will be extended to times generally comparable to
deadlines for checks drawn on city institutions.
However, because of
-5the large geographic area and the large number of institutions in RCPC
and country zones, it is not possible to treat all of these
institutions in exactly the same manner.
In order to assure that
similarly situated RCPC and country institutions are treated
comparably, if the volume of activity increases for specific
institutions, they may also be included in this program.
(3)
Competition between Reserve Banks and depository
institutions. The third major concern raised by commenters was that
the Federal Reserve was competing unfairly with other providers of
payments services.
Several commenters stated that the proposal to
extend deposit deadlines for institutions using Federal Reserve
transportation without similar extensions for institutions using their
own transportation would enhance the Federal Reserve's competitive
position vis-a-vis the private sector and result in volume shifts to
the Federal Reserve.
It was also stated that the proposed prices
would provide the Reserve Banks an unfair competitive advantage
because processing fees would not recover total costs, the
interdistrict transportation surcharge would not fully recover costs,
and the cost of Federal Reserve float would not be included in the
fees.
Some commenters also stated that the Reserve Banks' proposed
fee schedules favored smaller depository institutions and, therefore,
discriminated against larger institutions.
Further analysis of the proposed different deposit deadlines
for ITS users and direct sending institutions indicated the potential
for temporary disruptions in check clearing patterns.
To avoid this
problem, the program has been modified to provide later deposit
deadlines to all depositors— intraterritory institutions, institutions
that direct send to other Federal Reserve offices, and institutions
using the Federal Reserve's ITS network.
The fee schedules that the Reserve Banks proposed for
implementation in conjunction with the changes in the System's check
collection services were designed to recover total operating costs
plus the private sector adjustment factor ("P SA F").
A review of the
proposed prices indicates, that they fairly reflect the cost of
providing the services.
The schedule of fees to be implemented in
1983 by the Reserve Banks will recover the total costs of providing
the check collection services, including the 16 percent PSAF.
The proposed ITS surcharge was designed to recover the costs
of transporting checks on the network based on estimated mature volume
levels. The surcharge has been modified to assure that all costs of
transporting checks on the network, based on estimated 1983 volume are
recovered.
As previously indicated, the Board has requested comment on
proposals to reduce and price for float.
It is anticipated that the
proposals will be reviewed by the Board in late January.
(4)
Other issu es. A number of commenters expressed concern
that the Federal Reserve had a competitive advantage over the private
sector because of its role as both competitor and regulator.
Commenters cited the ability of Reserve Banks to avoid payment of
presentment fees, to obtain payment from paying institutions by the
close of business on the day of presentment in the form of immediately
available funds, and to vary the check collection rules of the Uniform
Commercial Code.
The Board has carefully evaluated these comments.
The Board believes that the program does not represent an exercise of
regulatory authority and does not result in a competitive advantage
for Reserve Banks.
The move to later presentment represents the
exercise of the same rights that all presenting banks possess under
the Uniform Commercial Code. With regard to the issue of presentment
fees, the Federal Reserve Act (12 U.S.C. § 342) prohibits the
imposition of such fees on Reserve Banks.
In any event, there is a
question as to whether a paying bank is performing a service for which
a fee may be assessed when it pays checks drawn on it in the ordinary
course of business.
In addition, the Board does not believe that the
ability to charge an institution's account at the Reserve Bank
represents a significant advantage since correspondent relationships
between depository institutions may also provide for such arrangements.
Several commenters also suggested that the manner in which
the proposal was being implemented did not comply with the procedural
requirements of the Administrative Procedure Act or the due process
guarantees of the Constitution.
These commenters expressed the view
that the request for comment did not provide enough time or
information to enable interested parties to comment on the proposal in
a meaningful way.
Some commenters also suggested that the Board
should conduct formal hearings before an administrative law judge
before making its decision on the proposal. After a review of
applicable law, the Board has concluded that the notice and comment
procedures adopted by the Board were sufficient to inform interested
parties of the scope and nature of the proposal and that, under
current law, a formal hearing before an administrative law judge is
not required.
B. Board A c t i o n . After review of the comments the Board has
determined to approve the following program to accelerate the
collection of checks by Reserve Banks.
1.
Reserve Banks will have checks available for presentment!/ (or
dispatch) to paying institutions no later than 12:00 noon local
time.
The transition to later presentment will be accomplished in
two steps.
On February 24, 1983, presentment will be moved to
11:00 a.m.; on May 2, 1983, it will be moved to 12:00 noon.
3/ Presentment indicates the time that Federal Reserve offices will
present checks at clearinghouses or make them available for pick up at
the Reserve office. Where deliveries must be made to city
institutions outside a clearinghouse, delivery will be made as close
as possible to these hours.
2.
The later presentment policy program will be applied to RCPC and
country paying institutions that receive a substantial dollar
value of checks.
Further, deposit deadlines for checks drawn on
high dollar RCPC and country institutions will be extended beyond
the deadlines that were originally published by the Reserve
Banks.
Generally, these deadlines will comparable to the
deadlines for checks drawn on city institutions.
3.
Each Reserve office's later deposit deadlines will be made
available to all depositors— intraterritory institutions,
institutions that direct send to other Federal Reserve offices,
and institutions using the Federal Reserve's ITS network.
4.
The revised fee schedules, like those published in August, will be
designed to recover the full costs of the check collection service
plus the 16 percent private sector adjustment factor.
The ITS
surcharge will be set to recover the full costs of transporting
checks over the network, based on 1983 volume estimates.
5.
In order to provide depository institutions and their customers
with adequate lead time, the program will be implemented in 1983
as follows:
Jan. 17
Reserve Banks announce new prices, deposit
deadlines, and funds availability schedules for
check services.
Jan. 31
Recommendations will be presented to the Board on
the float reduction/pricing program.
Feb. 24
Reserve Banks implement new deposit deadlines and
new prices for check services, and move the time
for presentation of checks drawn on city
institutions to 11:00 a.m.
May
2
Reserve Banks move presentment for checks drawn on
city institutions to 12:00 noon.
July
1
Reserve Banks implement new deposit deadlines for
checks drawn on certain non-city institutions and
implement the later presentment times for these
institutions.
The Board has carefully reviewed the impact of the program on
depository institutions.
The Board believes that smaller institutions
will benefit substantially from the program in the form of better
funds availability.
Larger institutions will also benefit from better
funds availability and the payor bank services to be offered by the
-8 Reserve Banks.
The Board has determined that the program will
accelerate the collection of checks and represent a more efficient
utilization of resources, thereby enhancing the efficiency of the
nation's payments mechanism.
By order of the Board of Governors of the Federal Reserve
System, December 27, 1982.
(signed)
James M c A f e e
James McAfee
Associate Secretary of the Board
[SEAL]
FEDERAL RESERVE SYSTEM
FEE SCHEDULES FOR FEDERAL RESERVE BANK SERVICES
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
1983 Fee Schedule for Coin and Currency Transportation.
SUMMARY:
The Monetary Control Act of 1980 (Title I of Pub.L. 96-221)
requires that schedules of fees be established for Federal Reserve
Bank services.
On October 30, 1981, the Board adopted a schedule of
fees for the coin and currency transportation service, effective
January 28, 1982.
The Federal Reserve has now adopted a new fee
schedule for this service.
EFFECTIVE DATE:
January 27, 1983.
FOR FURTHER INFORMATION CONTACT:
Lor in S. Meeder, Associate Director
(202/452-2738),
Steven 0.
App,
Manager
(202/452-2705),
or
Robert B. Kaiman, Senior Operations Analyst (202/452-2219) , Division
of Federal Reserve Bank Operations; or Gilbert T. Schwartz, Associate
General Counsel
(202/452-3625), or Daniel L. Rhoads, Attorney
(202/452-3711), Legal Division.
SUPPLEMENTARY INFORMATION:
The Monetary Control Act of 1980 requires
that fee schedules be developed for Federal Reserve Bank services
based on pricing principles established by the Board.
On December 30,
1980, the Board, after notice and public comment, adopted revised
pricing principles, implementation dates on which fee schedules for
each service will become effective, and fee schedules for several
services.
46 F.R. 1338 (January 6, 1981).
Subsequently, the Board
adopted a policy for access to cash processing services and a fee
schedule for coin and currency transportation, effective January 28,
1982.
46 F.R. 55151 (November 6, 1981).
The fee structure adopted by the Board for the armored
carrier service for 1982 generally contained two elements:
a volume
(per bag) charge and a per stop charge.
The volume charge of $0.50
per bag of currency or coin was intended to simplify the fee schedule
and provide for more appropriate allocation of costs between high
volume and low volume endpoints.
The per stop charge was based on
zones serviced by each Federal Reserve office and varied between
offices since armored carrier costs are not simply a function of
distance but also reflect the frequency of stops along a route and the
extent of competition in the areas serviced.
In some instances, fees
included charges based on mileage or value.
Reserve Banks were also
given the flexibility to establish other fees in some circumstances,
such as negotiated fees for high volume customers.
[Enc. C ir. No. 9433]
- 2 -
In adopting the fee schedule for this service, the Board was
concerned that immediate imposition of the full costs of cash
transportation could have a significant impact on depository
institutions, particularly those smaller institutions located in
remote areas where transportation charges would be very high.
The
Board therefore determined that it was appropriate to adopt a
temporary fee ceiling of $75 on the per-stop element of the charge as
necessary to assure the provision of an adequate level of cash
transportation nationwide.
With regard to coin and currency shipped by registered mail,
Reserve Banks normally limited the use of registered mail shipments to
those endpoints where armored carrier service is unavailable or where
other special circumstances prevail.
Where registered mail is used,
the Board determined that it would be appropriate to impose a fee
ceiling of $37.50 per shipment for one-way delivery either to or from
a Reserve Bank, consistent with the ceiling on armored carrier
per-stop charges.
The Board also determined to maintain the fee ceilings for no
more than two years (1982 and 1983) , and committed to review the
appropriateness of the fee ceilings for armored carrier per stop
charges and registered mail shipments in 1983 at which time the fee
ceilings could be adjusted.
By the end of the two year period, fees
for cash transportation would be set to recover all costs of armored
carrier service as required under the MCA, within the 48 contiguous
states.
For endpoints using registered mail, charges will be based on
actual Reserve Bank expenses incurred for postage and full insurance,
and would recover the full costs incurred.
The Board has now decided to continue a fee ceiling on cash
transportation during 1983.
However, the Board believes that the
ceiling should be adjusted so that depository institutions bear a
greater portion of the cost of transportation.
The continuation of a
ceiling will provide a smooth transition to full cost recovery pricing
of the transportation service anticipated in 1984.
The Board has also
determined to extend the flexibility of Reserve Banks to structure
fees more responsive to prevailing armored carrier industry practice
and geographical considerations.
Experience with priced cash transportation over the past year
(the first year of pricing this service) has indicated that retaining
the bag charge will create difficulty in achieving a cost/revenue
match for this service since revenue is subject to shifts in the
public's demand for coin and currency.
Further, it is difficult to
translate an armored carrier's fixed monthly billing into a formula
that effectively permits revenue recovery on a transaction basis.
The
Board has therefore determined to permit Reserve Banks the option of
utilizing a bag charge in conjunction with a stop charge.
The bag
)
- 3 -
charge may not, however, exceed $2 per bag if a Reserve Bank elects to
continue use of this element in the fee structure.
The Board has also determined to adjust the fee ceilings
adopted in 1982.
Fee ceilings for 1983 may be as low as $100,
provided a Reserve Bank's aggregate price support costs do not exceed
projected levels for 1983.
Cash transportation prices would be
directly related to the full cost of transportation, including
administrative costs and the private sector adjustment factor, and to
market conditions and industry practices.
Operationally, this means
that prices would be established route by route, stop by stop,
geographic zone by zone, or by frequency of service (e.g., daily,
weekly, biweekly, or monthly) in order to reflect the distance and
time expense necessary to equitably allocate actual cost of cash
transportation to user depository institutions.
Reserve Banks using
common carriers would continue to pass through the published tariffs
to customers.
The 1983 fee ceilings for registered mail shipments of
currency and coin will be equal to the ceiling for armored carrier
stop charges.
When 1982 ceilings were established, they were set at
one-half the ceiling for armored carrier stop charges in recognition
of the fact that armored carriers provided both pick-up and delivery
at each stop.
Experience over the past year has indicated, however
that most registered mail shipments have been one-way trips and not
the round trips anticipated when the registered mail ceiling price was
set at one-half of the armored carrier stop ceiling price.
Cash is
shipped out or is deposited, but seldom both on a turn-around basis.
By setting the 1982 ceiling at one-half of the armored carrier ceiling
to compensate for the round trip capability of each armored carrier
run, the use of registered mail was made more attractive.
The Board recognizes, however, that full imposition of the
registered mail ceiling on each shipment leg may increase costs for
small, remote institutions that do in fact use registered mail to send
and receive cash on an essentially turn around schedule.
Therefore,
the registered mail ceiling will be applied as follows.
If a
depository institution both deposits and receives cash within a Monday
through Friday calendar week, this activity will be treated like an
armored carrier round trip for pricing purposes.
That is, the
institution will not be required to pay the fee ceiling twice (once
for the incoming and once for the outgoing leg) . This circumstance
would be analogous to instances where users of armored carrier
transportation would pay only a single stop charge even if they choose
to both receive and send cash on a single armored carrier round trip.
If, however, a registered mail user either sends or receives cash more
than once during the Monday to Friday period, or has more than one
round trip during that period, the fee ceiling would apply only to the
first round trip or to the first trip of multiple one way trips going
in the same direction in that period.
Neither the second round trip
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nor the second outgoing or incoming shipments would be subject to the
fee ceiling.
The Board is aware that the reduction in the price supports
for cash transportation may result in increased costs for small
institutions remotely located from a Federal Reserve office.
However,
such action is necessary at this time to provide for a transition to
full cost pricing of the transportation service in 1984.
To mitigate
this burden, Reserve Banks are considering a uniform accounting
procedure for the crediting and debiting of institutions for cash
shipments, regardless of who provides the transportation.
This
procedure would decrease the inventory costs associated with cash
transportation incurred by small institutions.
Further, Reserve Banks
have, where possible, renegotiated multi-year carrier contracts and
taken other actions to reduce cash transportation costs and keep
prices for the service as reasonable as possible.
In addition,
studies have been initiated to determine if cash depot and cash
terminal arrangements should be utilized as a means to reduce
transportation costs and provide an adequate level of services.
Reserve Banks will also continue exploring a variety of other methods
of reducing transportation costs to high-cost locations.
The 1983 fee schedules for cash transportation and detailed
information will be made available by the Federal Reserve Banks.
By order of the Board of Governors of
System, December 22, 1982.
(signed)
the Federal Reserve
J a mes M c A f e e
James McAfee
Associate Secretary of the Board
[SEAL]
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