The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FED ER AL RESERVE B A M K OF M E W YO R K [ Circular No. 9629 January 27, 1984 ~| WIRE TRANSFER AND NET SETTLEMENT FEES — Increase In Off-Line Surcharges — Proposed New On-Line Fee Structure To All Depository Institutions, and Others Concerned, in the Second Federal Reserve District: The Board of Governors of the Federal Reserve System has approved a new fee schedule for the off-line funds transfer and net settlement service, which will become effective March 1,1984. This new fee schedule represents the first change in funds transfer prices since April 29, 1982. In addition, public comment is requested on a proposal to change the fee structure for services that are provided to depository institutions with on-line connections to the Fed eral Reserve. Concurrent with the announcement in March 1983 that existing fees for the funds transfer and net settlement service would remain unchanged through 1983, it was indicated that the Federal Reserve would be examining alternatives to charging only transaction fees. There are substantial fixed costs involved in operating a national telecommunications network, and these fixed costs do not vary, at least in the short-run, with changes in transaction volume. Moreover, the fixed costs are incurred to provide a basic level of service to all institutions, whether they use the capabilities of the network intensively by making many transfers or infrequently by making only a few transfers. Therefore, it appears reasonable to establish a fee structure that recognizes, at least to some extent, the fixed costs of providing on-line services. The proposed fee schedule establishes a set of fixed monthly fees for on-line institutions by type of connection, i.e., dial-up, leased line, or computer interface. This would be a uniform national fixed fee and would be assessed once each month for each separately addressable on-line connection with the Federal Reserve. Only one fixed fee would be paid per connection, regardless of the number of services used. An important feature of the fixed fee schedule is the associated proposal that the basic transaction fee for the funds transfer service would be reduced at least from $0.65 to $0.60, concurrent with implementation of the new schedule. This means that all depository institutions would benefit from lower transactions fees as fewer costs would need to be recovered from this fee component. While the proposal calls for an initial reduction in funds transfer transactions fees only, it is possible that similar reductions could apply to other services in the future. (In this connection, it should be noted that this Bank, as part of its ongoing cost control efforts, is reviewing its current policies regarding back-up communications arrangements for computer interfaces and leased-line (DART) terminals and may change the practice of absorbing redundant line and telephone connection charges.) The proposed imple mentation date for the new fee structure is June 28, 1984. We believe that the proposed fixed fee structure for on-line access represents an orderly approach to offsetting, in part, the costs of providing the basic communications network required for such services. Your comments on the proposal are most welcome, and we would like to answer any questions you may have. Your comments must be submitted by March 17,1984; comments on the proposal, or questions on the new surcharges or the proposal, may be directed to Henry F. Wiener, Assistant Vice President (Tel. No. 212-791-5079), or Robert W. Dabbs, Manager, Funds Transfer Department (Tel. No. 212-791-8475). Printed on the reverse side is the text of the Board’s press release. In addition, enclosed — for depository institu tions in this District — are the Board’s official notices in this matter; they will be published in the F e d e r a l R e g is te r and additional copies may be obtained from our Circulars Division (Tel. No. 212-791-5216). A nthony M . S olom on, P r e s id e n t. (Over) Board Press Release on Wire Transfer and Net Settlement Fees The Federal Reserve Board has published, for public comment, a proposed revision to the fee structure for the Federal Reserve’s wire transfer of funds service. The proposal includes a reduction of the basic fee for originating or receiving a wire transfer of funds from $0.65 to $0.60 per transfer. At the same time, the Board proposed a fixed monthly fee for all depository institutions that have an electronic connection with the Federal Reserve. The fixed monthly fee charges would be: Type of Connection Monthly Fees A ll Priced Services, E xcept D edicated A C H and Securities Transfer C onnections1 Computer Interface Leased Line Dial-up D edicated A C H C onnections2 $840 $1,400 $ 350 $ 75 $210 $ 45 Comment is requested by March 17, 1984. Revisions to the off-line3 surcharges for the Reserve Bank’s wire transfer of funds and net settlement services have been made, to become effective March 1. The new fee schedule is: Wire Transfer o f Funds Off-Line Origination Telephone Advice N et Settlem ent $5.50 $3.00 Off-Line Settlement Telephone Advice $8.00 $3.00 Pending Board action, the basic transfer fee, currently $0.65, will remain in effect for all on- and off-line funds transfers. 1 Approximately 60 on-line connections are used by depository institutions solely for securities transfers. No fixed monthly fees will be assessed at this time for these dedicated connections, pending a review of the fee structure for securities transfers later this year. 2 The automated clearing house (ACH) service is priced under an incentive pricing policy. The fees proposed for dedicated ACH connections reflect a 60 percent recovery rate for the service. 3 Off-line institutions do not have an electronic connection with the Federal Reserve and, therefore, must origi nate their transactions and be advised of their settlement by phone. FEDERAL RESERVE SYSTEM Docket No. R-0504 FEE SCHEDULES FOR FEDERAL RESERVE BANK SERVICES AGENCY: Board of Governors of the Federal Reserve System. ACTION: Fee Schedules for Wire Transfer of Funds and Net Settlement Services. SUMMARY: The Monetary Control Act of 1980 Law 96-221) requires that schedules of fees be established for Federal Reserve Bank services. wire transfer implemented 1983 . (Title I of Public of funds effective The Board has and Revised fee schedules for net April 29, approved settlement 1982, an and services continued increase in the the were through off-line surcharges for the wire transfer of funds and net settlement services . EFFECTIVE DATE: March 1, 1984. FOR FURTHER INFORMATION CONTACT: Director (202/452-2231) (202/452-3955) or Elaine Division, M. or Florence M. Young, Division Gilbert T. Schwartz, of Federal Reserve Program Manager Bank Associate General Counsel Boutilier, Attorney Board of Governors Washington, D. C. Elliott C. McEntee, Associate Operations; (202/452-3625) (202/452-2418), of the Federal Reserve Legal System, 20551. SUPPLEMENTARY INFORMATION: The Monetary Control Act of 1980 (”Actn ) requires that fee schedules be developed for Federal Reserve Bank services based on pricing principles established by the Board (12 U.S.C. [Enc. Cir. No. 9629] § 248a). The current fee schedule for “ 2- the Federal Reserve's wire transfer of funds and net settlement services was implemented on April 29, 1982, and was reviewed by the Board on March 17, 1983 . As indicated continuing the existing fee schedule comprehensive review was conducted transfers the notice (48 Fed. Re g . 12135), during structure for the wire transfer of funds serviceso in 1983 and of net the a fee settlement These services include both on-line services~-i.e., made through electronic connections--and off-line services— i.e., transfers made upon the receipt of a telephone request. This provided review concluded to depository that institutions the off-line are labor services intensive and that the current off-line surcharges are not fully recovering the costs incurred in providing the serviceso Reserve Banks to recover To enable the the costs of off-line services, the Board has determined that the following surcharges will apply for off-line services beginning March 1, 1984s Wire Transfer of Funds Net Settlement Off-line Origination $5.50 Off-line Settlement $8.00 Telephone Advice $3.00 Telephone Advice $3.00 The current fees are $3.50 for an off-line origination of a funds transfer, $5.00 for an off-line origination of a net settlement, and $2.25 for a telephone transfer or net settlement entry. it is anticipated that annual approximately $ 8 million. advice of a funds As a result of the changes, off-line revenue will be The current basic fee for transfers -3- originated and received ($0.65 per transfer) and net settlement entries ($1.30 per entry) will remain in effect until a new fee schedule is approved by the Board proposed that the basic later transaction this year. fee for It is transfers originated and received be reduced to $0.60 and a new fixed monthly fee be assessed to on-line institutions based upon the type of electronic connection that is installed between the institution and the Federal Reserve Bank. (See Proposed Fee Schedules Net for Wire Transfer of Funds and Settlement Services, published simultaneously with this notice.) By order of the Board of Governors of the Federal Reserve System, January 17, 1984. (s ig n e d ) W i l l i a m W. W i l e s William W. Wiles Secretary of the Board FEDERAL RESERVE SYSTEM (Docket Noo R-0505) FEE SCHEDULES FOR FEDERAL RESERVE BANK SERVICES AGENCY: Board of Governors of the Federal Reserve System,, ACTION: Proposed 1984 Fee Schedules for Wire Transfer and Net Settlement Services„ SUMMARY- The Monetary Control Act of 1980 Law 96-221) requires that schedules of fees be establshed for Federal Reserve Bank servi-ces„ wire transfer implemented 1983c (Title I of Public of funds effective and net April 29, Revised fee schedules for the settlement 1982, and services continued were through The Board now seeks comment on the following new fee structure and new prices for these services to be implemented in 1984: Monthly Fees Type of Connection Computer Interface Leased Line Dial Up All Priced Services, Except Dedicated ACH and Securities Transfer Connections!/ $1,400 $ 350 $ 75 Dedicated ACH Connections!/ $840 $210 $ 45 !/ A number of on-line connections are used by depository institutions solely for securities transfers. No fixed monthly fees will be assessed at this time for these dedicated connections , pending a review of the fee structure for the securities tr ansfer service later this year0 2/ The ACH service is priced under an incentive pricing policy 0 The fees proposed for dedicated ACH connections reflect a 60-percent recovery rate for the service0 [Enc. Cir. No. 9629] -2- In conjunction with implementing fixed monthly fees for electronic connections with the Federal Reserve, it is also proposed that: — the fee for originating or receiving a wire transfer of funds be reduced from $0.65 to $ 0 o60 per transfer? and ~ the fee for originating a securities transfer be maintained at $3.00 per transfer. DATE: Comments must be received by March 17, 1984. ADDRESS: Comments, may be mailed Governors of to: the Constitution which should refer to Docket No. R=0505, William W. Federal Avenue, N. Wiles, Reserve Secretary, System, W „ , Washington, 20th D. C. Board of Street and 20551, or delivered to room B-2223 between 8:45 a.m. and 5:15 p.m. Comments received may be inspected in room B=1122 between 8:45 a.m. and 5:15 p.ni., except as provided in section 261.6(a) the Board's Rules Regarding Availability of Information of (12 C.F.R. § 261.6(a)). FOR FURTHER INFORMATION CONTACT: Elliott C. McEntee, Associate 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 or Elaine Division, M. Boutilier, Board of Governors Washington, D 0 C. Attorney 20551. (202/452=3625), (202/452=2418), Legal of the Federal Reserve System, - SUPPLEMENTARY INFORMATION: requires 3- The Monetary Control Act of 1980 that fee schedules be developed for Federal Reserve Bank services based on pricing principles established by the Board (12 U.S.C. § 248a) . The Board, in accordance with the requirements of the Act, has established fee schedules for the wire transfer current fee of funds schedule, and net settlement implemented on services. April 29, The 1982, was retained because estimates of the volume of funds transfers and the total costs, including the PSAF, indicated that revenues would cover the 1983 costs of providing the service:. noted, at that time, The Board that a comprehensive review of the fee structure for these services had been undertaken and that if significant changes were determined comment would 1983). The be solicited results of that to be necessary, (48 Fed. R e g . 12135, review indicate public March 23, that it is appropriate to revise the existing fee structure for the wire transfer of funds service in order to recover anticipated costs for 1984. Accordingly, the Board is requesting public comment on a revised fee structure. For the period January through November, 1983, total costs, including the PSAF, amounted to $52.0 million and total revenues amounted to $52.4 million, resulting in a modest net revenue surplus of approximately $400 thousand. The volume of funds transfers originated amounted to 34.7 million during the eleven month period, period in 1982. an increase of 8 percent over the same Cost, volume and revenue data for December, =4“ 1983, are not yet available0 However, it is expected that a modest net revenue surplus will be realized for the year 1983, The total costs, including a 16 percent PSAF, of providing the wire transfer of funds and net settlement service are projected to be $62,4 million in 19840 If the current fee schedule for projected revenues would these services amount to were $58,9 retained, million, resulting estimated net revenue shortfall of $3.5 million. order to match costs and revenues, the Board annual in an Therefore, proposes in to implement fixed monthly fees and lower basic transaction fees on June 28, 3 / 1984.— As a result of these changes, 1984 revenues of about $62.9 million are anticipated for the wire transfer of funds and net settlement service, resulting in a net revenue surplus of $500,000. Cost Structure The Reserve Banks provide electronic services to four classes of users; (1) institutions directly to Federal Reserve computers, terminals or micro-computers Reserve via dedicated, leased with computers (2) institutions using that are linked lines, linked (3) to the Federal institutions using terminals or micro-computers that are linked to the 2/ In this connection, the Board has approved, effective March 1, 1984, an increase in the off-line surcharges for the wire transfer of funds and net settlement services. (See Federal Register notice published simultaneously with this notice.) - Federal Reserve via public 5- telephone lines or dial-up facilities, and (4) institutions without electronic connections that initiate and receive over the telephone or, house The table and securities in the case of the automated clearing (57ACHH) , physically following transfers of funds deliver indicates the and receive approximate transactions. number of electronic links to the Federal Reserve as of December 31, 1983s Number of Electronic Connections Type Number Computer Interface Leased Line Dial-Up ACH Data Link 100 1,300 2,700 200i/ During 1983, on-line users of the Federal Reserve's electronic services originated about 98 percent of all funds transfers and about 99 percent of all securities transfers. In the case of the ACH service, on-line institutions originated less than 25 percent and received only 10 percent of commercial ACH transactions The on-line electronic payments services offered to depository institutions by the Reserve Banks are capital i/ Unlike other electronic connections, ACH data links are frequently shared,, Approximately 2,000 depository institutions are currently served by the 200 data links that are installedo 5/ On September 23, 1983, a revised fee schedule for the ACH service was published for public comment. (48 F„Ro 44650) The proposal to implement fixed monthly fees for electronic services will have a minor impact on the proposed ACH fee schedule since a relatively small percentage of ACH transactions are originated and received via on-line connections. - 6- intensive services and fixed costs are high relative to total costs. The Federal Reserve has developed sophisticated intradistrict and interdistrict data communications networks, invested in processing state-of-the-art equipment, and data is communications developing and enhanced data automated systems for each of its electronic payments services. Certain elements of the Federal Reserve's data communications and data processing costs would be incurred in order to offer electronic payments services even if no on-line connections with the Federal Reserve were other costs, in particular the costs offered. However, associated with intradistrict communications networks, would not be incurred if on-line connections communications circuits, were networks offered. consist Intradistrict primarily of the lines, and modems used to link depository institutions the Federal Reserve. costs not of the local During 1983, networks that it is estimated were allocated that to the to priced services amounted to $6 to $7 million. Depository institutions that have computer-interface connections with the Federal Reserve originated more than securities 60 percent transfers considerable of during resources computer-to-computer the to total 1983. number These purchase interfaces, and of and received funds institutions and install Federal Reserve devotes considerable time to testing the equipment. that the high transaction volumes and are processed expend staff To ensure efficiently, 7- - high speed? dedicated Federal Reserve. lines link In addition? these the institutions capacity of to the the Federal Reserve's data processing and data communications equipment is largely dictated by the volume of transactions originated and received by these high volume users. Institutions using terminals or micro-computers that are linked via leased lines accounted for nearly 30 percent of all funds software and securities necessary applications to software However? Federal transfers interface is Reserve during 1983. Computer the Federal Reserve's the Federal with provided by development and support spread over a relatively broad base because In many cases,, the lines costs are the majority of institutions within a Federal Reserve District equipment. Reserve. leased use the same from common carriers serving individual institutions feed into one circuit linked with capacity the Federal Reserve than the lines used by and? generally? institutions have with less computer interfaces. During micro-computers 1983? institutions using linked via public telephone for about terminals lines? 8 percent or that is? dial-up connections? accounted transaction volume. The Federal Reserve provides the necessary software to support their use of electronic services. of total However? the lines connecting these institutions to the Federal Reserve are typically public telephone lines that require institutions to dial the transactions. Federal Reserve to originate or receive -8- In serving summary, individual the costs to the Federal institutions with computer Reserve of interfaces tend to be higher than for those with leased-line connections, which are higher than for those with dial-up connections0 the three classes of on-line institutions use the However? Federal Reserve's electronic services with different intensities., When fixed costs? such as data communications costs, are spread over the high transaction volumes processed by computer-interface institutions, the per transaction impact of fixed costs tends to be lower* Conversely? for lower volume? leased-line or dial-up institutions? the per transaction impact of fixed costs tends to be higher* Alternatives At present? the fees assessed for the wire transfer of funds? securities transfer? and the ACH services are generally based Basing on the average fees .on cost of processing average processing costs 6/ a transaction.— is an appropriate pricing methodology when a high proportion of total production costs are variable* In the case electronic a high proportion services? relative to total costs* of the of Federal costs Reserve's are fixed Thus? some modification to the 6/ On September 23? 1983? a revised ACH fee structure was published for public comment that proposed instituting fixed deposit and receiver handling fees reflecting fixed costs associated with these activities* (48 F*R0 44650) 9- - current fee structures for electronic services could result in fee structures that more closely resembled the cost structure of the services. To achieve this objective, the following alternatives were reviewed° — assessing variable transaction fees for wire transfers of funds and securities services based on the type of on-line connection used by a depository institution; — assessing on-line institutions the actual costs of the lines and modems that are installed to provide electronic payments services; and -- assessing fixed monthly fees that would type of on-line connection and would, recover the cost of intradistrict vary by on average, communications networks. Based on the staff study, the first alternative, the use of variable transaction fees, would result in a range of transaction institutions being fees, using assessed connections, to with the dial-up highest connections institutions with being and assessed the lowest to fees computer-interface due to differences in transaction volumes among the three classes of on-line institutions. While the use of variable transaction fees would reflect the costs of providing electronic payments services more accurately than the current fee structures, it still would not fully reflect the fixed cost 10- - structure of services. provide the Federal Moreover, depository Reserve's variable electronic transaction institutions fees an incentive payments would also to upgrade type of connection linking them with the Federal the Reserve in order to reduce the variable costs they incur in using Federal Reserve services,, more costly to Since dedicated leased-line connections are the Federal Reserve than shared dial-up facilities and computer-interface connections are more costly than leased-line connections, moves to upgrade connections on the part of depository institutions would increase rather than reduce the overall costs of the Federal Reserve's electronic payments services. The alternative of passing through actual line and modem costs to individual depository institutions would provide an objective means of assessing fees. institutions with cost-effective, an incentive on-line transactions handled,. to connection However, It would also provide select based on the the most volume of telephone rates are frequently based on distance and may vary from region to region, resulting in disparate charges Furthermore, uncertainty Finally, the AT&T regarding determining institutions sharing would be complex,, to institutions within divestiture the the fees costs leased creates that that lines or using Therefore, a great would would the same class. be be deal of assessed. assessed to dial-up networks this approach was regarded as unacceptable due to its complexity and the unpredictability of telephone rates. - 11- The third alternative? assessing fixed monthly fees to on-line institutions that vary by type of connection? like passing through actual line and modem costs? would be based on clearly identifiable structure that fixed reflects costs and would the fact that high result in a fee fixed costs are incurred in providing electronic services,, Setting fees that? on intradistrict average? would recover the costs of communications networks would generate revenues comparable to those Although generated effect of connections depending fixed under monthly would upon the vary an second alternative. fees on within institutions each institution's variability in fees charged rates would not occur. with connection volume of the on-line category transactions? due to differences in telephone Therefore? the use of fixed fees would remove the uncertainty regarding charges that would exist under the pass-through provide proposal. incentives for This alternative depository also institutions to should select cost-effective? on-line connections and? thereby? contribute to reductions in the overall electronic services. costs Accordingly? of the Federal Reserve’s the Board believes that this alternative is the most reasonable basis for recovering fixed costs? and the following proposed this approach. fee structure incorporates - 12Monthly Fees All Priced Services, Except Dedicated ACH and Securities Transfer Connections Type of Connection Computer Interface Leased Line Dial Up Dedicated ACH Connections $1,400 $ 350 $ 75 $840 $210 $ 45 Under the Board's proposal, a fixed monthly fee would be assessed for each separately addressed connection that a depository institution and the is installed between Federal Reserve. When an institution uses one connection to access the Federal Reserve for all types of electronic services, one fee would be assessed based on the type of connection0 However, if a depository institution uses a computer-interface connection for funds transfer services and a dial-up connection for ACH services, and each connection institution connection. would be assessed is separately the monthly addressable, fee for the each It should be noted that fixed monthly fees would be assessed to all on-line institutions— those that use their own equipment to interface with the Federal Reserve and those that lease equipment from the Federal Reserve,, Because the ACH service is priced under an incentive pricing policy, it is proposed that the fixed monthly fees for communications links used solely for ACH transactions should be included under that policy, Specifically, the ACH fees recently published for public comment were set to recover percent of the costs of providing commercial ACH 60 services. That proposal also included fixed receiver handling fees for - 13- both ground and electronic delivery* If fixed monthly fees for on-line connections with the Federal Reserve are implemented, it is proposed that the receiver handling fee for electronic delivery, if one is adopted, be eliminated in order to avoid double charging users of ACH services* There depository this are a number institutions time, no fixed solely monthly dedicated connections, of on-line for fees connections securities are used by transfers. proposed for At these pending a review of the fee structure for the securities transfer service later this year* Currently, some Federal Reserve Banks' terminal lease fees include a component that is intended to recover a portion of intradistrict communications and other costs* Banks also assess that own their Some Reserve fixed monthly fees to on-line own terminals- or micro-computers leasing them from the Federal Reserve. monthly fees for on-line institutions rather than If the proposed fixed institutions are implemented, it is proposed that these Reserve Banks would discontinue assessing the fixed monthly institutions At fees that they now charge to on-line 7/ this time, the Reserve Banks project that intradistrict communications costs will amount to approximately 7/ Existing fees assessed for terminals used exclusively for securities transfers will continue in effect pending a review of the fee structure for securities transfers later this year* - 14- $8.3 million during 1984, an increase of 20 to 40 percent over 1983 costs. based The relatively substantial on estimates of the effects increase in costs is of the AT&T divestiture, which are highly tentative at this time, as well as growth in the number of on-line Based on the connection connections with the Federal Reserve,, projected with the number Federal of each Reserve type during of 1984, on-line it is estimated that the proposed fixed fees would generate annual 8/ revenues of approximately $8.0 million.— ' As a result of these changes, it is also proposed that the following transaction fees be implemented: Basic Transfer Originated Basic Transfer Received Met Settlement Entries $0.60 $0.60 $1.30 This proposal would result in a $0.05 reduction in the basic fee for originating or receiving a funds transfer. change is proposed for the fee for net settlement No entries. This new transaction fee would be implemented at the same time fixed monthly fees are implemented, which is proposed to be June 28, 1984. By order of the Board of Governors of the Federal Reserve System, January 17, 1984. ( s ig n e d ) W illia m W. W i l e s William W. Wiles Secretary of the Board ®/ Approximately 70 percent of the revenue generated through fixed monthly fees would be allocated to the wire transfer of funds and net settlement service.
@FedFRASER