For immediate release

The Federal Reserve Board on Wednesday approved fee schedules for Federal Reserve Bank payment services for depository institutions (priced services), effective January 3, 2006.

The Reserve Banks project that they will recover 102.5 percent of all their priced services costs in 2006 and estimate that they will recover 103.6 percent of these costs in 2005.

From 1995 to 2004, the Reserve Banks recovered 97.5 percent of priced services costs, including operating costs, imputed costs, and targeted return on equity (or net income), which amounts to a ten-year total net income of slightly less than $550 million.

Since the mid-1990s, there has been a national trend away from the use of checks and toward the use of more efficient electronic payment alternatives. In response to this trend, the Reserve Banks have undertaken several initiatives to improve operational efficiencies and reduce costs. In particular, as part of their check restructuring initiative, the Reserve Banks have reduced the number of Federal Reserve check processing locations from forty-five in 2003 to twenty-seven and have announced plans to further reduce the number to twenty-two sites by the end of 2006. In 2006, the Reserve Banks are expected to realize full-year operational efficiencies and cost savings associated with the check restructurings that have already occurred and partial-year savings associated with the restructurings in 2006. In addition, the Reserve Banks have reduced costs in a variety of support and overhead areas and, as a result, the Reserve Banks expect to recover fully the costs of providing priced services in 2006.

Overall, the price level for Federal Reserve priced services will increase about 3 percent in 2006 from 2005. This increase reflects an approximately 5 percent rise in paper check service fees combined with a 1 percent decrease in fees for the Reserve Banks' electronic payment services. The 2006 fee schedule for each of the priced services, except the check service which is more complex, is included in the attached Federal Register notice. Fee schedules for all priced services are available on the Federal Reserve Banks' financial services web site at www.frbservices.org.

In addition, the Board approved the 2006 private-sector adjustment factor (PSAF) for Reserve Bank priced services of $117.7 million. The PSAF is an allowance for income taxes and other imputed expenses that would have to be paid and profits that would have to be earned if the Reserve Banks' priced services were provided by a private business. The Monetary Control Act of 1980 requires that the Federal Reserve establish fees 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.

The Board's notice is attached.

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