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For release on delivery 1G00 A.M. E.S.T. M a y 6,1987 Statement by Wayne D. Angell Board of Governors of the Federal Reserve System before the Subcommittee on Domestic Monetary Policy of the Committee on Banking, Finance and Urban Affairs of the House of Representatives May 6, 1987 I appreciate this opportunity to discuss and review the Federal Reserve System's expenses and budget Subcommittee. In policy independence; budget and the In January he focused on issue of Federal Reserve budgetary and in June he concentrated on our expense and performance budget. this 1986 Chairman Volcker testified twice on Federal Reserve budget matters. budget with over the last ten years and on the 1986 This testimony continues that series with emphasis on budget developments in 1987. We have recently made available to the public and to this Subcommittee Annual Report; copies Budget of our R e v i e w , 1986 -87 . presents detailed— but readable and about spending plans for expenditures in 1985 and 1986. about the budget Reserve System. and publication 1987, This entitled document convenient— information and comparisons with Also included is information accounting processes in the Federal The Budget Review is in its second year of publication, and is a companion document to the Board's 73rd Annual R e p o r t , 1 9 8 6 . Much of the material in this testimony has from the budget document. updated for 1986 actual been taken The attached tables have been experience and, therefore, variations exist from data in that document. small - 2 - Before getting to the substance of our 1987 budget, I would remind the Subcommittee of two aspects of Federal Reserve System operations which affect our budget in unusual ways. First, about 40 percent of the Reserve Bank arise from services provided to depository institutions for which, by law, we imputed taxes, charge and fees imputed adequate to expenses cover return on capital (that would have been paid had the services been furnished by a business f i r m ) . these imputed adjustment costs, private In fact, since fees cover actual costs plus costs factor) (what plus we the call imputed the private cost sector of float, our revenue from the priced services amounts to about 50 percent of all our spending. Priced services are subject to the competitive discipline of the marketplace, yet we neither price on the basis of what the market can bear nor limit our provisions of particular services to "profitable" customers or geographic areas; nor do we rely on variable cost pricing to maintain operations market are recovered Table 1). Second, reimbursable Altogether, about 57 either share. percent through many fiscal agency from the Treasury Department. of our total expenses are pricing or are reimbursable (see - 3 - A 10-year Overview Let me put the 1987 budget in further perspective by sketching briefly the 10-year history of System expenses. In the 10-year period from 1977 expenses to 1987, Reserve increased at an average annual rate of 6.7 percent in nominal terms and 0.9 percent in Chart Federal 1 and those (Chart 2). subject about 40 percent through inflation, dollars (see Table 2) while System employment decreased by 1,129 or 4.4 percent (chiefly constant decreased to 1986; In the measured pricing), unit volume increased costs, over 25 percent services adjusted (see Chart 3). productivity showed an average gain of over 5 for Labor percent per year. Any discussion of operational trends during this period should mention the impact of the Monetary Control Act (MCA) on System pricing system requirements resources. described to The MCA, which created the earlier, also extended all nonmember banks and thrifts, requiring us to create and maintain new data maintenance reserve systems. With collection and account the transition to pricing, new billing and pricing systems had to be established and access to our services institutions. to be provided to all depository If the 10-year period is divided distinct periods — — had into three pre-MCA, transition to MCA, and post-MCA performance stands out more clearly: - 4 - Pre-MCA, from 1977 to 1979, nominal expenses increased at an annual rate of 5.4 percent. If a broad based measure of inflation is used, an annual rate of decrease in real expenses of 2.4 percent is implied. - During the MCA implementation phase from 1980 to 1982, nominal expenses increased at an annual rate of 11.7 percent because of the large outlays required for the Monetary Control A c t — an annual rate of increase of 3.1 percent is implied in real terms. Post MCA, from 1983 to 1987, nominal expenses increased at 4.3 percent on average— an annual rate of increase of 1.0 percent is implied in real terms. The last 10 years have also seen rapid changes in the banking industry that have required additional resources to strengthen examinations of member banks and inspections of bank holding companies. The period has also by rapid operations, volumes, developments significant and steady in automation increases increases in in of been marked Reserve Bank electronic payments paper-based payments volumes. On 1977-1986, the have productivity decreased at front, For priced services processing accounts services expenses — for unit costs, an annual rate of about 3.5 percent per year. which real — primarily check about 75 percent of priced there were sharp volume losses during - 5 - the MCA transition period. Because of substantial elements of fixed costs, real expenses could not be cut at rate as volume decreased; However, every same thus, real unit costs increased. since 1983 unit costs have again declined in almost area, bringing than in the 1970's. in the real unit costs substantially lower The decline has been particularly sharp electronic payment areas where equipment is more readily substituted for human resources and where volume growth has been more rapid. Gains in productivity have also been made in non-priced service areas, which are comprised principally of fiscal agency operations performed for governmental units and cash operations involving distribution of currency coin. In these and services, volumes have increased and real unit costs have declined or risen only slightly during the same time periods. This productivity reduction 10-year gain actions was in Gramm-Rudman-Hollings. period of concluded 1986 and expenditure by 1987 control and additional in the expense spirit of - 6 - Gramm-Rudman-Hollinqs As Chairman Volcker indicated in this Subcommittee testimony before last year, even though the System is not covered by the Gramm-Rudman-Hollings legislation, the decided to reduce System manner consistent with its that a Bank and reduction Board appropriate. of of I am Board budgeted expenses for 1986 in a spirit. The Board determined $18 million in the System's Governors) pleased System achieved the reduction approved (Reserve budget was to be able to report that the targeted by further reduced expenses by $5.3 million the Board and (see Table 3). The Federal Reserve System is continuing in 1987 to make special efforts to limit the growth of Reserve Banks have reduced expenses by $21.1 million. budgeted expenditures As a result, Table 4 1987 Reserve Bank reductions. personnel costs related to a self project, which I The planned growth in 1987 Reserve Bank are only 1.3 percent more than those in the original 1986 budget. the previously expenses. provides At the Board, imposed staff details of savings in reduction will discuss later, and to Gramm-Rudman- Hollings combined to hold expenses well below the which they would otherwise have risen. level to - 7 - As you may know, the budgets for the Reserve Banks and the budget for through the Board Governors are approved separate processes although all must be approved by the Board of Governors. reviewed by Activities; the the Administrative categories Reserve of Committee Board on budget Governor. are Banks Reserve Bank budgets must first must Also, different Federal in reviewed Bank by the service and expense object some and the Board. be Reserve be respects Therefore, between the it is appropriate that I discuss the Reserve Bank budgets and the Board budget in separate sections. Reserve Bank Budgets for 1987 Planning for 1987 percent of System expenses) Reserve Bank budgets (93.2 began early in 1986, when staff developed the budget objective based on forecasts of Reserve Bank workloads objective, and which productivity. was This annual budget approved by the Board in the spring, was used by the Reserve Banks in developing their plans budgets. At each of the 12 Reserve Banks, the proposed 1987 budget was given rigorous review as and guidance) by (with the budget objective a committee of senior Bank officials, the First Vice President and the President. The budget, as modified by these reviews, was also reviewed and approved by the Reserve B a n k 1s Board of Directors many of whom are - 8 - responsible in organizations. their In private the fall, capacity for managing large Reserve Bank budgets were submitted to the Board of Governors where they were analyzed and reviewed Activities by the which Committee held on Federal Reserve Bank separate meetings with each Reserve Bank President on the proposed budget. As budgeted a result expense of of the non-priced— was held to an estimated 1986. five review Reserve increase process Banks— both of 2.9 the total priced and percent over (Over actual 1986, the increase is expected to be 3..1 percent estimated.) the since actual The Reserve Banks' initiatives, expenses were less than 1987 budgets are affected by which we believe to be of high priority. These initiatives are: 1.) The Board of Governors decided in 1985 to intensify System supervisory oversight of state member banks and of bank holding companies and to strengthen the procedures for reporting to bank management. These efforts will cost $6.7 million more in 1987 than they did in 1986. The impact of this program is seen in the employment growth in supervision and regulation of 175 in 1986 over 1985 and of 94 in 1987 over 1986. The program enhancement will be in place in 1987. 2.) A computer contingency center will provide emergency data processing for the N ew York Reserve Bank's electronic transfers of large-dollar funds and securities. The center is budgeted at $3.9 million in 1987 and is needed to reduce the possibility of financial crises should existing facilities fail. (These expenses are partially recovered through pricing and reimbursement.) - 9 - 3.) Several Districts are improving their electronic delivery and receipt of payment information and their check clearing services at a cost of $3.5 million. (These expenses are recovered through pricing.) 4.) One-time expenses will be incurred in moving into a new branch building and renovating four head-office buildings at a cost of $4.9 million. 5.) Several initiatives for the U. S. Treasury will increase expenses by $4.8 million. Treasury Direct, a book-entry system for the safekeeping of marketable Treasury securities for individuals and small investors, is expected to reduce staff at the Treasury Department resulting in a net reduction of federal resources. A full year of operations of the Treasury Direct System will increase reimbursable expenses by $4.4 million in 1987 and increase staff at the central site in Philadelphia by 24 employees (bringing total staff there to 69). The Federal Reserve is also continuing the development of a Public Debt Accounting and Reporting System and two savings bonds projects. The total increase initiatives is be for 1986 only expenses $24 million in 1987. costs for these projects, would in for these major If we were to exclude the 1987 budget for Reserve Banks 0.9 percent greater than estimated expenses (see Table 5). Budgeting for these initiatives and at the same time keeping bottom line expense growth low percent) other was achieved by restrained growth or areas. were more than (2.9 decreases in Indeed, staff increases for these initiatives offset by decreases in other services, producing a 1987 budgeted decrease in total staff of 220. - 10 - For basis, a look at 1987 budgeted expenses on a program I will discuss our four service lines in the order of their size (see Table 6). Expenses for services to financial institutions and the public total $799 million two-thirds of the Reserve Banks' and account 1987 budgets. budgeted to increase 3.8 percent over volume increases are expected employment is budgeted to for in decline Expenses are actual all by almost 1986. While major operations, 77 persons or 0.8 percent from 1986. Almost half of the expenses in this operational area is related to commercial check processing. increase for this area, growth a whole 330 million more than in continuing improvements in efficiency, staff is budgeted to focus on offering new notification truncation writer); of the (under which and and results in volume and in the cost of new services. 1987 the System expects to process 14.8 checks, budget $14.2 million, accounts for most of the increase for the service line as from The decline or checks 1986. of are commercial As a result of the commercial checks by 67. improved return billion In System initiatives services large-dollar not returned such as checks; to the the accelerated availability of funds through - l i the development of new products, the enhancement of existing ones, and the expansion of check clearing zones. The budget projections do not, however, reflect the potential impact of legislation being considered that would mandate deposited by certain check. in the Senate and the House availability limits on funds Passage could require a 20-35 percent increase in return items staff and an increase in equipment. Overall expenses could approach $50 million over several years. Expenses for currency processing increase $0.9 million or 0.8 percent. of more than 14 billion notes increase of 4.7 percent). improve further processing. It the is is are expected to High speed processing expected next year (an Reserve Banks are taking steps to technology of high speed currency anticipated that newly designed second generation equipment will improve efficiency of operations in future years. Expenses in the funds projected to increase $3.3 million or because the 5.7 software and the new expansion of electronic networks in several to the public. The Districts to System expects to process 85 million funds transfers in 1987, a percent over 1986. are largely of services service percent implementation improve of transfer rise of 6.2 - 12 - An increase of $5.3 million or 9.5 percent is expected for the automated clearing house service because of the growth in workload (21 percent) and higher associated with expanding the electronic networks. reduction costs A staff of 13 is planned for noncash collection as volume continues to decline. Expenses for total $172 million, Banks' 1987 budgets million supervision constitute and are and regulation, which 14 percent of the Reserve budgeted to or 4.7 percent over actual 1986. increase $7.8 A major factor in the increase is the continuation of a program instituted in 1985 to strengthen the supervision of financial institutions and improve directors. communications The supervision examination activities, or 7.0 percent. with their service, management which and includes the is budgeted to increase $6.5 million The enhanced supervisory program will be fully implemented by the end of 1987. Employment is expected to increase by 94 or 4.5 percent (mostly bank examiners). To accomplish the enhanced supervisory program cost effectively, the Reserve Banks are shifting resources from other supervisory areas. For example the Reserve Banks will reduce the frequency examinations of of smaller banking - 13 - organizations with satisfactory the frequency of trust compliance better with Reserve Banks in with and examinations regulations; state they will reduce and examinations. for they will be Also, the are improving productivity through continued use of automation, computers examinations consumer integrated ratings; the including the use field, of portable personal and in-house analysis in certain cases. Even without the enhanced supervisory program, the workload in supervision and regulation would be expanding as a consequence of the normal growth in the formation state member banks and bank holding companies. the current environment, some Districts, the the growing number continued expansion banking activities by multinational the of banking of of new Moreover, in mergers in investment organizations, number of problem banks, and the Board's payment system risk reduction program are all placing additional demands on Reserve Bank resources. Expenses for services to the U. S . Treasury and other government agencies— the next service line in order of size— are all budgeted Reserve decline $0.9 Bank at $136 million for 1987 expenses). million or 0.6 Expenses percent are from (11 percent of expected to 1986 levels, - 14 - primarily as a consequence of accounting changes workloads. Partially increased expense of Direct, a offsetting $4.4 book-entry million system marketable Treasury securities investors. these in for for and factors 1987 the lower is for the Treasury safekeeping individuals and of small In addition, the Federal Reserve is developing a "public debt accounting and reporting system" for the U. Treasury at a cost of $483,000 in 1987, in 1986; and System's central the Pittsburgh site for Branch $285,000 more than will processing S. serve payroll as the bonds and book-entry savings bonds at a cost of $97,000 in 1987. Expenses for monetary and total $91 million and economic policy, which account for about 8 percent of the 1987 budget, are expected to increase only $232,000 or .3 percent in 1987. Employment is expected to be 780, a decline of 11 from 1986 levels. Factors tending to decrease ex penses include the completion of a major banking statistics project, which will enhance the System's capacity to process and analyze financial data from depository institutions, a reduction Factors in staff increasing automation, for expenses initiatives and economic policy determination. include expanded office in open market trading at N ew York (two additional staff and s oftware), and financial problems of developing countries. analysis of the - 15 - A brief review of Reserve Bank expenses on an object of expense basis might be useful to the (See Table 7). salaries and percent 1.3 Total personnel expenses, which include all related benefits expenses, contributing over for 62 1986 actual levels. A major factor to this low rate of increase is the decline of million 1987— owing in to retirement a and cessation other of cost of group life insurance. is not a decline in to the in the A negative expense adjustment resulting from 1987 implementation Standard benefits contributions overfunded retirement plan in 1987, and GAAP account of total expenses and are expected to increase only percent $13.9 Subcommittee of included. a recently These adopted decreases are partially offset by increases in expenses of other benefits. Another expected Personnel several officers significant use on of and contract Table important factor 7) in program employees is a major computer 1987 decrease programmers (Other due to the completion of applications. salaries in the Increases result from increases, promotions and reclassifications, merit and changes for pay in the number of employees. Equipment total expenses, expenses, which make up 14 percent of are budgeted to increase 7.5 percent over - 16 - 1986. Equipment costs have risen more rapidly than personnel costs in recent years as capital has labor to improve budgeted for upgrades to productivity. equipment ensure been substituted In summary, results from compatibility for the increase replacements with and the System's long range automation plan and with automation and communication initiatives. Building total expenses, 1987. The expenses, which are expected to increase increase consumption, 11.9 percent in results from anticipated increases in local tax rates and assessments, and constitute 9 percent of renovations increases in utility and rates refurbishments, rentals in some Districts, and the full year effect higher of new buildings at two branch locations. Shipping costs, 7 percent of total expenses, are budgeted to increase 3.5 percent because of higher costs for the interdistrict transportation system and anticipated increases in courier rates. Other remaining 8 objects percent of of increase only 1.4 percent. expense, total constituting expenses, the are expected to - 17 - Table 8 depicts the plans of the Reserve Banks capital spending in 1987. By their nature, vary greatly from year to year. for capital outlays Outlays for buildings and for data processing and communications equipment continue to dominate Reserve Bank capital budgets. Board Budget The relatively budget of the Board with Board the Each division appropriate Oversight Committee, Members, provided Governors small part of the total System budget, to about 6.8 percent of the whole. met of early in the process. is a amounting director composed of These meetings a high level forum for planning budget initiatives and reviewing programs to find offsetting result of the budget to an process increase was reductions. The a guideline limiting the 1987 of only 2.7 percent over 1986 estimated expenses. As a result of the intensive management review, the Board's 1987 operating increase $2.3 expenses. than of budget million totals $86.3 million, an or 2.7 percent over actual 1986 The 1987 budget is, the original 1986 budget. however, 0.3 percent less This relatively low rate of growth can be attributed to three major factors: - 18 - 1) Program Improvement Project - This staff reduction project was initiated in mid-1984 to reduce expenses by scaling back lower priority functions and by improving productivity. The incremental 1987 savings as a result of the staff reduction project are $ 2.2 million; the annual rate of savings from this program since its inception total $5.6 million. 2) Gramm-Rudman-Hollings The Board in its voluntary compliance with the spirit of this legislation adopted measures in 1986 that reduced its operating budget by $1.4 million. The reductions were accomplished and the revised 1986 budget was under-expended at year-end. Some of the reductions made in 1986 to comply with G-R-H were carried forward into 1987. 3) Income - The Board adopted a policy to reduce the costs associated with Board publications. This policy reduced expenses $0.1 million in 1986 and will save $0.5 million per year beginning in 1987. The major Board's functional Supervision operations areas: and are categorized into four Monetary Regulation, and Economic Services to Policy, Financial Institutions and the Public, and System Policy Direction and Oversight (see Table 9). Expenses in the Board's largest functional area, Monetary and Economic Policy, are budgeted to 4.8 This increase is percent to $46 million in 1987. increase attributed to relatively low 1986 data processing costs by and to higher than normal vacancy rates in 1986 due to budgetary restraints. 1987 will The installation of a microcomputer network increase expenses but efficient collection and analysis will of data in also foster more in conjunction with the present Board mainframe configuration. - 19 - The Supervision and Regulation area has been subject to the same factors that have affected this area the Reserve sharply in budgeted Banks the to and last consequently, two years. expenses have grown Although expenses the of increase nation's productivity areas. industry surveillance, have been gains This has been necessary because the state of banking supervision, resources are increase only 1.6 percent above 1986 expenses, this increase follows a 12.8 percent increase in 1986. level at has and required of staff Examples of the required intensified enforcement. Additional in spite working increase of in in impressive the supervisory workload from 1982 through 1986 include: a 25 percent increase in the number of bank holding companies monitored; the number analyzed; of bank holding a 132 percent increase company a 278 percent increase in in examination reports the number of formal enforcement actions. In the area of Services to Financial Institutions and the P u b l i c , the 1987 budget percent 1986 expenses. less than of $2 This million is 16.1 decrease is the result of the completion of portions of the development work associated with the daylight overdraft project. The project is intended to minimize risk in the payments mechanism. - 20 - The 1987 budget for Oversight Policy Direction This reinstatement had of been Improvement increase a program held in Project. is partially to the to perform operations reviews abeyance The due 1987 during budget the Program for the oversight portion of this category was increased to include improve and is $16.2 million which is 1.6 percent higher than 1986 expenses. which System funds to the ability of the Board to perform electronic data processing audits improvement Reserve at helps Act the the requirement Federal Board to to Reserve comply examine Banks. This with the Federal each Reserve Bank annually. Again, a brief review of expenses on an object of expense basis is useful. of the Board's $86.3 retirement and insurance represents a $0.7 1986 expenses. salary Seventy percent, or $60.1 million expenses million budget (see is for Table million salaries, 10). This or a 1.2 percent increase over A 3.0 percent general pay increase, routine actions and changes in insurance rates account for a $3.3 million increase which is partially offset by the million Project. savings associated with the Further savings of $0.4 million $2.2 Program Improvement resulted from a reduction of 22 positions in centralized data processing and an increase in the vacancy rate throughout the Board. - 21 - The operating remaining budget depreciation. of $1.5 30 is percent for of goods the and Board's 1987 services, These expenses total $26 million, an increase million or 6.2 percent over 1986 expenses. This increase can be attributed primarily to depreciation, reflects which capital investments of approximately $17.4 million by the Board mainframe in 1986 including the purchase of a new computer and disk access devices for $12 million. This equipment was necessary volume and to handle of data processed at the Board, analysis and modeling, and to increases in the to support increased support enhancements in supervision. Conclusion In closing, I would like to emphasize that the Board believes the Federal Reserve's budget worked comments well you information in may and controlling expenses. have on our processes have I would welcome any presentation of budget I am prepared to address any questions you m ay have on our budget. Table 1 Operating Expenses of the Federal Reserve System, Net of Receipts 1985-87 1/ Millions of dollars, except as noted 1985 1986 Item Total System operating expenses..... . Less: Revenue from priced services Other income Reimbursements 1,199 1,245 614 1 97 628 1 112 EQUALS Net System operating 487 expense 1. Details may not add to totals because of rounding. 2. Beginning in 1987, about $10 million charged to depository 1987 budget 1,284 Percent Change 1985-86 1986-87 3.8 3.1 630 2.3 12 2/ — 90 15.5 .3 — -19.6 9.5 504 552 3.5 institutions for Treasury services will be recorded as Federal Reserve income rather than transferred directly to the U.S. Treasury and claimed as a reimbursement. Table 2 Federal Reserve System Expenses and Employment, 1977-87 Budget Mill ions of dollars Expenses Percent Amount Change Personnel Percent Amount Change 1977 1978 1979 672 703 747 3.3 4.7 6.2 25,773 24,948 24,551 (3.2) (3.2) (1.6) 1980 1981 1982 852 948 1,041 14.1 11.3 9.8 25,198 25,480 24,755 2.6 1.1 (2.8) 1983 1984 1985 1986 1987 budget 1,100 1,145 1,199 1,245 1,284 5.7 4.0 4.8 3.8 3.1 24,466 24,257 24,609 24,721 24,644 (1.2) (0.9) 1.5 0.5 (0.3) Table 3 Reduction in 1986 Budgeted Expenses of the Federal Reserve System in Voluntary Response to the Gramm-Rudman-Hol1ings Legislation Thousands of dollars Item 1986 Original Budget Less: Board-approved reduction Additional reductions Equals: 1986 actual Reserve Banks Board System 1,182,137 86,591 1,268,728 16,732 4,115 1,396 1,199 18,128 5,314 1,161,290 83,996 1,245,286 Table 4 Spirit of Gramm-Rudman-Hol1ings Reductions in 1987 Budget— Reserve Banks Thousands of dollars Item Amount District program reductions Administration Protection Public programs Personnel Research Library 1,263 1,642 1,391 1,158 748 728 District deferments Furniture and equipment Software Building repairs 3,186 1,116 581 Systemwide reductions System automation projects and centrally provided services Audit Currency Treasury initiatives Consumer affairs examinations 3,994 1,209 885 642 482 Increased recoveries 2,089 Total 21,114 Table 5 Increase in the Operating Expenses of the Reserve Banks, Excluding the Increases from Major Initiatives, 1986-87 Thousands of dollars, except as noted Expense item Operating expenses 1986 total, estimate 1987 total, budget Amount 1,164,068 1,197,813 Increase, 1986 to 1987 Thousands of dollars Percent 33,746 2.9 Less Increases from major 1987 intiatives Enhanced supervision of banks and bank holding companies Computer contingency center Payment services Physical facilities Initiatives for the U.S. Treasury Total 6,661 3,908 3,507 4,858 4,758 23,692 Equals Increase excluding major Thousands of dollars Percent 1987 initiatives 10,054 .9 Table 6 Operating Expenses of the Federal Reserve Banks, by Operational Area 1985-87 Thousands of dollars, except as noted 1985 1986 Operational Area 1/ Monetary and Economic Pol icy.............. Supervision and Regulation.......... Services to Financial Institutions and the Public.......... Services to the U.S. Treasury and Other Government Agencies.. TOTAL 1987 budget Percent Change 1985-86 1986-87 90,945 90,570 90,802 -.4 .3 151,991 163,915 171,690 7.8 4.7 742,896 770,016 799,379 3.7 3.8 131,544 136,789 135,943 4.0 -.6 1,117,377 1 ,161,290 1,197,813 3.9 3.1 1/ Including the cost of support and overhead services. 1985 1986 1987 budget 816 Supervision and Regulation......... . 1,912 Services to Financial Institutions and the Public......... . 8,754 Services to the U.S. Treasury and Other Government Agencies. . 1,781 791 780 -3.1 -1.4 2,087 2,181 9.2 4.5 8,799 8,722 .5 -.8 1,819 ** 00 *2 Employment at the Federal Reserve Banks, by Activity, 1985- 87 Average number of personnel, except as noted 2.1 1.2 Support and overhead: Support.............. . 4,398 Overhead............. . 5,323 4,469 5,274 4,511 5,127 1.6 -.9 .9 -2.8 22,984 23,239 23,162 1.1 -.3 Activity Percent Change 1985-86 1986-87 Operational areas: Monetary and Economic To tail Table 7 Operating Expenses of the Federal Reserve Banks, by Object, 1985-87 Thousands of dollars, except as noted 1985 1986 1987 budget 51,677 494,110 17,357 134,267 697,411 56,168 523,309 16,693 133,360 729,531 58,954 549,536 10,072 120,279 738,842 8.7 5.9 -3.8 -.7 4.6 5.0 5.0 -39.7 -9.8 1.3 2,572 46,280 60,309 34,261 143,422 3,096 40,665 68,000 38,998 150,760 2,577 36,171 78,843 44,485 162,077 20.4 -12.1 12.8 13.8 5.1 -16.7 -11.1 15.9 14.1 7.5 283 21,079 21,088 22,946 13,100 13,536 92,032 610 22,213 23,549 22,809 14,976 13,607 97,765 729 24,530 26,838 24,489 16,610 16,204 109,400 115.7 5.4 11.7 -.6 14.3 .5 6.2 19.5 10.4 14.0 7.4 10.7 19.1 11.9 13,794 68,975 82,769 13,464 68,416 81,880 13,569 71,196 84,765 -2.4 .8 -1.1 .8 4.1 3.5 Total other 45,037 20,877 15,396 14,330 6,103 101,743 46,005 19,775 15,255 11,207 9,114 101,356 47,481 21,919 13,679 10,658 8,993 102,730 2.1 -5.3 - .9 -21.8 49.3 -.8 3.2 10.8 ■ -10.3 -4.9 -1.3 1.4 Total nonpersonnel.... 419,966 431 ,761 458,972 2.8 6.3 ,117,377 1,161,290 1,197,813 3.9 3.1 Object PERSONNEL Officers1 salaries..... Employees* salaries.... Retirement and benefits. Total personnel...... Percent Change 1985-86 1986-87 NONPERSONNEL Equipment: Rentals................ Repairs and maintenance. Total .equipment...... Bui 1dings: Taxes on real estate.... Property depreciation... Uti1ities.............. Other.................. Total building....... Shipping: Other.................. Total shipping....... Other: Supplies............. Travel................. Communications......... Table 8 Capital Outlays of the Federal Reserve Banks, by Class of Outlay, 1985-87 Thousands of dollars, except as noted 1985 1986 1987 budget 71,727 68,246 64,617 -4.9 -5.3 21,378 1,093 49,553 19,623 432 69,930 18,588 14,437 74,785 -8.2 -60.5 41.1 -5.3 — 6.9 3,766 701 3,697 3,389 7,608 3,506 -1.8 383.5 105.8 3.5 148,217 165,317 183,540 11.5 11.0 Capital class Data processing and data communications equipment Furniture and other equi pment Land and other real estate Bui 1dings Building machinery and equipment Leasehold improvements Total Percent Change 1985-86 1986-87 Table 9 Operating Expenses of the Board of Governors, by Operational Area 1985-87 Thousands of dollars, except as noted 1985 1986 Operational Area 1/ Monetary and Economic Pol icy.............. Supervision and Regulaof Financial Institu tions.............. Services to Financial Institutions and the Public.......... System policy direction and oversight....... TOTAL 1987 budget Percent Change 1985-86 1986-87 45,136 43,896 45,985 -2.7 4.8 19,259 21,739 22,080 12.6 1.6 2,589 2,402 2,015 -7.2 -16.1 15,051 15,958 16,213 6.0 1.6 82,035 83,995 86,293 2.4 2.7 1J Including the cost of support and overhead services. Table 10 Operating Expenses of the Board of Governors by Object Class, 1986-87 Thousands of dollars, except as noted 1986 1987 budget Salaries Reti rement Insurance $53,907 2,670 2,793 $54,239 2,700 3,152 $332 30 359 0.62 1.12 12.87 Personnel Services, Subtotal $59,370 $60,091 $721 1.21 $ $ Object Class Goods & Services, Subtotal BOARD OPERATING BUDGET $ 41 230 (50) (19) 58 (68) 512 3 (87) (639) 4 96 (117) 824 (21) 358 (51) (76) 81 (383) 1,756 (52) (500) (358) 20,105 (20,122) $24,626 $26,147 $1,521 6.18 83,996 86,239 2,243 2.67 55 55 $86,293 $2,298 919 10 1,162 522 804 2,358 438 1,490 892 1,208 44 4,066 591 703 313 (1,544) 5,793 (723) — 358 1/ y CPC System Contingency Items TOTAL OPERATING BUDGET 22.07 9.04 (4.96) (1.29) 6.35 (700.76) 44.06 0.60 (10.86) (27.10) 0.87 6.42 (13.09) 68.16 (48.64) 8.80 (8.65) (10.75) 25.95 24.83 30.31 7.26 229 2,771 961 1,462 978 (58) 1,674 525 717 1,719 441 1,585 775 2,032 23 4,423 540 628 394 (1,927) 7,549 (775) (500) — 20,105 (20,122) 00 188 2,541 1,011 •P* Fees Travel Postage & Expressage Telephone & Telegraph Printing & Binding Publi cati ons Commi ttee Stationery & Supplies Cafeteria Supplies Furniture & Equipment Rentals Books & Subscriptions Heat, Light & Power Repairs & Alterations Repairs & Maintenance Interest Expense Contractual Prof. Svcs. Tuition & Registration Subsidies & Contributions All Other Cont. Proc. Ctr. Income Depreciation Cafeteria Sales Savings & Reallocation Gain/Loss Asset Disposal IRM Resources IRM Income Change, 1986-87 Amount Percent $83,996 - - (100.0) — — 2.74 1/ Beginning in 1987, cost of support for central data processing is being charged directly to the divisions, therefore there was no income or direct IRM resources shown in 1986. Chart 1 Federal Reserve System Expenses 1977 - 19B7 Budget 1/ Deflated by GNP Deflator (1977 - 100) Chart 2 Federal Reserve System Employment Chart 3 Trends in Volume, Unit Cost and Employment ABF«ndiM»B77-B86
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