Fee schedules for Federal Reserve priced services for 2005.

The Federal Reserve Board approved fee schedules on November 4, 2004, for Federal Reserve Bank payment services for depository institutions (priced services), effective January 3, 2005.

The Reserve Banks project that they will recover 100.1 percent of all their priced services costs in 2005 and estimate that they will recover 94.6 percent of these costs in 2004.

From 1994 to 2003 the Reserve Banks recovered 97.8 percent of priced services costs, including operating costs, imputed costs, and targeted return on equity (ROE, or net income), which amounts to a ten-year total net income of slightly less than $500 million.

Since the mid-1990s there has been a national trend away from the use of checks and toward more efficient electronic payment alternatives. Although this trend has affected the entire payments industry and is consistent with the Federal Reserve's position of encouraging the use of more efficient electronic payment alternatives, it has adversely affected the ability of the Reserve Banks to fully recover their costs. In response to this national trend, the Reserve Banks have improved operational efficiencies and reduced costs with the aim of returning to full cost recovery in 2005.

As part of their check restructuring initiative, the Reserve Banks have reduced the number of Federal Reserve check-processing locations from forty-five to thirty-two and have announced plans to further reduce the number to twenty-three sites by early 2006. In 2005 the Reserve Banks are expected to realize full-year operational efficiencies and cost savings associated with the first round of restructurings in 2003 and 2004, and partial-year savings associated with the second round of restructurings. The Reserve Banks have also reduced costs in a variety of support and overhead areas.

Overall the price level for Federal Reserve priced services will increase about 7 percent in 2005 from 2004 levels. The increase reflects an approximately 8 percent rise in paper-check service fees combined with a 2.6 percent increase in fees for the Reserve Banks' electronic payment services. Fee schedules for all priced services are available on the Federal Reserve Banks' financial services web site at www.frbservices.org.

The Board also approved, effective January 6, 2005, changing the earnings credit rate on depository institutions' clearing balances at the Reserve Banks from 90 percent to 80 percent of the three-month Treasury bill rate.

In addition the Board approved the 2005 private-sector adjustment factor (PSAF) for Reserve Bank priced services of $161 million. The PSAF is an allowance for taxes and other imputed expenses that would have to be paid and profits that would have to be earned if the Federal Reserve's priced services were provided by a private business. The Monetary Control Act of 1980 requires the Federal Reserve to recover the costs of providing priced services, including the PSAF, over the long run, to promote competition between the Reserve Banks and private-sector service providers.