Federal Reserve's Key Policies for the Provision of Financial Services
Policies: Standards Related to Priced-Service Activities of the Federal Reserve Banks
BackgroundSince 1913, the Federal Reserve has performed a dual role as both an operator in and a regulator of the nation's payment mechanism. Over the past seventy years--and as recently as 1980--the Congress has reaffirmed this role of the Federal Reserve. The Monetary Control Act of 1980 (MCA) has expanded the Federal Reserve's role by requiring the Federal Reserve to provide its services to all depository institutions on an equitable basis, taking into account the need to ensure an adequate level of services nationwide.
The Federal Reserve has exercised care to avoid actual or apparent conflict between its role as a provider of services and its role as a regulator, supervisor, and lender. Further, the Federal Reserve is careful to ensure that its actions promote the integrity and efficiency of the payment mechanism. As an extension of this, the Federal Reserve exercises care to ensure that it provides payment services to all depository institutions on an equitable and impartial basis. Federal Reserve actions are also implemented in a manner that ensures fairness to other providers of payment services. Moreover, there are in place external and internal safeguards that ensure that these objectives are achieved. Externally, the safeguards include congressional oversight, directly and through the General Accounting Office, and statutory controls. An additional level of external review is provided by the public through the opportunity to comment on all significant Board proposals. The internal safeguards include oversight by the Board of Governors and Reserve Bank boards of directors through various means, including use of the Board examiners and Reserve Bank internal auditors. Finally, the Federal Reserve itself imposes restrictions upon the conduct of its employees--restrictions intended to avoid even the appearance of impropriety.
To ensure further that its public interest role is paramount in providing priced services under the MCA, the following additional standards have been adopted.
StandardsOrganization and Operations
- No Reserve Bank personnel with responsibility for priced services, unless acting in the capacity of president or first vice president, will also be responsible for monetary policy, bank supervision, or lending areas. Priced-service personnel will not make policy decisions affecting monetary policy, bank supervision, or lending matters.
- Branch managers may administer policy decisions of a Reserve Bank in the lending area but may not make policy decisions in this area.
- Federal Reserve actions relative to a depository institution in the monetary policy, supervisory, or lending functions involving a particular depository institution will be made without regard as to whether that institution is a user of Reserve Bank services or is an alternative provider of such services.
- Except for the president, first vice president, branch manager, or persons acting in these capacities, Reserve Bank personnel involved in monetary policy, bank supervision, or the lending function may discuss Federal Reserve priced services with a depository institution only where necessary to carry out their responsibilities. With the exceptions noted above, personnel involved in priced services may discuss matters relating to monetary policy, bank supervision, or lending with a depository institution only where the information discussed is general in nature or is public.
- Reserve Bank personnel involved in monetary policy, bank supervision, or the lending function may provide confidential information obtained in the course of their duties to Reserve Bank priced-services personnel only where such action fulfills an important supervisory objective, preserves the integrity of the payment mechanism, or protects the assets of the Reserve Banks. In such cases, information will be provided on a need-to-know basis and only with the approval of senior management.
- All activities incident to the provision of priced services will be conducted in a manner that is fully consistent with the public role and responsibilities of the Federal Reserve.
- Federal Reserve services will be offered on a fair and equitable basis to all depository institutions on similar terms and conditions. The prices charged will be in accordance with the requirements of the MCA as implemented by policies of the Board of Governors.
- Reserve Banks will provide full and accurate information regarding the provision of Federal Reserve services (including features, quality, prices, and operating requirements) to enable depository institutions to make informed decisions. Comparisons of its services with those of other providers will be fair and objective.
- When introducing or revising services, Reserve Banks will announce such changes to the public in a manner that will ensure that communications reach all interested depository institutions in sufficient time to enable them to make appropriate adjustments.
Internal OversightThe primary responsibility for ensuring that the above standards are applied is entrusted to the management of each Reserve Bank. Accordingly, Reserve Bank management will ensure that these standards are clearly represented in Reserve Bank policies, procedures, and controls. Consistent with its overall responsibilities, oversight of business conduct is provided by each Reserve Bank's board of directors, principally through the Bank's internal audit function. The internal audit function of each Reserve Bank maintains independence from operating management by reporting directly to the Reserve Bank's board of directors.
Oversight of Reserve Bank priced-service activities is also carried out by the Board of Governors. This is accomplished through review and approval at the Board level of price and service-level changes. Furthermore, Reserve Bank priced-service activities are evaluated in conjunction with on-site reviews by the Board's operations review and financial examination staffs. Board oversight through these means ensures that Reserve Bank activities are consistent with the MCA and with Board policies with regard to priced services. In addition, the Board member serving as the chairman of the Board's Committee on Federal Reserve Bank Affairs is responsible for investigating and responding to complaints concerning actions of Reserve Bank personnel that are alleged to be inconsistent with the standards presented above, and inquiries concerning Reserve Bank actions may be directed to that person's attention.
The internal audit and Board examination activities focus on Reserve Bank compliance with policies, procedures, and controls, including standards of conduct related to priced-service activities. Audit and examination attention also encompasses activities and functions such as organizational structure and staffing, financial accounting and reporting, allocation of costs, information flows, and associated internal controls.
ConclusionIt is the policy and practice of the Federal Reserve System to conduct its affairs in a manner that will serve to maintain the integrity and credibility essential to the effective discharge of its public responsibilities. The Federal Reserve believes that these standards effectively address questions of potential conflicts while permitting the Federal Reserve to fulfill its public responsibilities in the provision of services to the nation's depository institutions. Policy statement of Aug. 14, 1984; 1984 Fed. Res. Bull. 712.