Federal Reserve Banks announce changes to cash infrastructure.

The Federal Reserve Banks announced on June 28, 2005, changes to cash services that are intended to improve operating effectiveness by providing cash services at some locations using different distribution methods.

The Reserve Banks plan in the next six to twelve months to switch from branch-based cash services to cash depots in Birmingham, Alabama; Oklahoma City, Oklahoma; and Portland, Oregon. These changes are part of a broader effort to update the Federal Reserve's infrastructure for processing currency.

"We've looked at, and will continue to look at, major metropolitan markets where we do not have a Federal Reserve presence and at smaller markets where we do have a presence but where different service models might be more effective," said Gary Stern, chairman of the Reserve Banks' Financial Services Policy Committee and president of the Federal Reserve Bank of Minneapolis.

"We want to ensure that we're making the best use of resources while satisfying the need for cash services. We want to emphasize that the Federal Reserve will continue to make cash services available to depository institutions throughout the country, although in some cases we will do so with a different business model," he said.

In 2004 and early 2005 the Federal Reserve discontinued cash services through Branches in Little Rock, Arkansas; Louisville, Kentucky; and Buffalo, New York, and established cash depots in those cities.

A cash depot is an alternative market presence for Federal Reserve cash services. With a cash depot, the Federal Reserve contracts with a third party--usually an armored carrier--that acts as a secure collection point for Federal Reserve currency deposits from the region's depository institutions. The depot also distributes currency orders that depository institutions have placed with the Reserve Bank. The work of counting deposits and preparing orders is done by a Federal Reserve office in another city. The Federal Reserve pays for the transportation between the Reserve Bank office and the depot operator. The operator follows strict procedures developed by the Federal Reserve.

The Birmingham cash depot will be serviced by the Federal Reserve Bank of Atlanta's head office, the Oklahoma City cash depot will be serviced by the Federal Reserve Bank of Dallas' head office, and the Portland cash depot will be serviced by the Federal Reserve Bank of San Francisco's Seattle office. Approximately fifty cash employees work at the Birmingham, Oklahoma City, and Portland Branches combined, but the number that will be affected by these changes is undetermined at this time. The Reserve Banks will offer a variety of programs to staff that are affected by these decisions, including separation packages, extended medical coverage, and career transition assistance.

The Federal Reserve will continue its evaluation of cash services and plans to announce further changes as recommendations are approved, including the possibility of serving new markets.

Cash remains a vital component of the nation's payment system. While studies show that the use of electronic payments is growing, cash use also continues to grow, and the dollar amount of U.S. currency in circulation worldwide has increased almost 88 percent since 1994, to $720 billion at the end of 2004. During the same period, the amount of deposits and orders processed through Reserve Banks has increased nearly 70 percent, to seventy-five billion bank notes, in 2004.

"These changes and others that may come later in the review process will help the Federal Reserve provide cash services more effectively, both when transitioning out of our own cash processing facilities and when establishing a first-time presence in a market," Stern said.