Federal Reserve Banks announce changes to increase efficiency in check services.

The Federal Reserve Banks on August 2, 2004, announced further changes to increase the efficiency of their check-processing operations while maintaining high-quality services to depository institutions throughout the country. Check-processing operations at nine sites will be discontinued and the volumes at these sites shifted to other Federal Reserve locations. These changes will take place through 2005 and early 2006, and they respond to the nation's increasing substitution of electronic payments for paper checks. This announcement follows the Reserve Banks' June 16, 2004, announcement of a strategy to meet the evolving demands of the payments system.

The Reserve Banks will continue providing check services to customers nationwide. However, by decreasing the number of check-processing locations and increasing capacity at other sites, the Reserve Banks will reduce their check service operating costs in line with the ongoing shift in consumer and business preferences for electronic payments.

"These changes are intended to improve the efficiency of our check operations while maintaining high-quality check services to depository institutions nationwide," said Gary Stern, chairman of the Reserve Banks' Financial Services Policy Committee and president of the Federal Reserve Bank of Minneapolis. "But streamlining our check infrastructure is only part of the Reserve Banks' strategy to improve efficiency; for example, we are also launching new products and services to support the implementation of the Check 21 Act in October 2004."

As previously announced in early 2003, the Reserve Banks are also undergoing a restructuring of their check operations from forty-five to thirty-two sites by the end of 2004. This new restructuring will reduce that number to twenty-three by early 2006. The implementation schedule for this new round of restructuring changes will be determined within the next several months. Also, as previously announced, the Reserve Banks will continue to review their check-processing operations each year and undertake further restructurings as necessary.

The new round of restructurings will mean the transfer of check operations as shown in the following table:

Offices where check       Offices where check
operations will close     operations will move

Boston, Massachusetts     Windsor Locks, Connecticut
Columbus, Ohio            Cleveland, Ohio
Birmingham, Alabama       Atlanta, Georgia
Nashville, Tennessee      Atlanta, Georgia
Detroit, Michigan         Cleveland, Ohio
Oklahoma City, Oklahoma   Dallas, Texas
Houston, Texas Dallas,    Texas
Portland, Oregon          Seattle, Washington
Salt Lake City, Utah      Denver, Colorado

"As we've been saying for some time and as the financial services industry realizes, not only are fewer checks being written, but paper checks are increasingly giving way to electronic alternatives," said Stern. "While this makes for an increasingly efficient payments system, it also means that we must shift work among offices and, unfortunately, some dedicated staff will lose their jobs."

As a result of these changes, the Reserve Banks will reduce their overall check staff on net about 270, representing about 6 percent of their current check employees. In the offices where check processing will be eliminated, about 640 positions will be affected. Some staff reductions may occur through attrition and there may be some opportunities for reassignment. In addition, the Reserve Banks estimate that they will add about 370 positions at the offices that will continue to process checks.

As with their current restructuring effort, the Reserve Banks will offer a variety of programs to affected staff, including separation packages, extended medical coverage, and career transition assistance.

In 2003 Reserve Banks' check volume declined at about a 5 percent rate. During 2004 check volumes have declined at an accelerated pace, and such declines are expected to continue in coming years. A 2001 Federal Reserve study revealed that about 42 billion checks were written in the United States in 2000, down from about 50 billion in 1995. The Reserve Banks will continue to assist the nation's financial services industry by conducting research related to the nation's payments system. The results of the most recent payments study will be available later in 2004.

The Federal Reserve Banks' long-term check-processing strategy will allow them to better meet the expectations of the 1980 Monetary Control Act. That act requires the Federal Reserve to set prices to recover, over the long run, its total operating costs of providing payment services to depository institutions, as well as the imputed costs it would have incurred and the imputed profits it would have expected to earn had the services been provided by a private business firm.