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Appendix A: Federal Reserve Budget Processes

The budgets for the Board of Governors, the Federal Reserve Banks, and currency are separate, and each has its own budget process.

Board of Governors

For the past 12 years, the Board prepared two-year budgets. However, to better respond to the significant changes in demands placed on the Board during the financial crisis and the potential impact of regulatory restructuring proposals, the Board approved a one-year budget for 2010.

The Board's Office of Inspector General (OIG), in keeping with its statutory independence, prepares its proposed budget apart from the Board's budget. The OIG presents its budget directly to the Chairman for action by the Board.

Federal Reserve Banks

The Reserve Banks' budgets cover one year. Annually, each Reserve Bank establishes major operating goals for the coming year, devises strategies for attaining those goals, estimates required resources, and monitors results. The Reserve Banks' budgets are structured by operational area, with support and overhead attributable to each area charged to that area.

The operations and financial performance of the Reserve Banks are monitored throughout the year by way of a cost-accounting system, the Planning and Control System (PACS). Under PACS, the costs of all Reserve Bank functions are grouped by operational area, and the associated costs of support and overhead are charged to these areas accordingly. PACS makes it possible to compare budgets with actual expenses, and it facilitates comparison of the financial and operating performances of the Reserve Banks. During the budget year, the Reserve Banks must submit proposals for major purchases of assets to the Board for further review and approval.

Following is a summary of the Reserve Bank budget process:


The currency budget covers one (calendar) year. On a monthly basis, Board staff monitors payments of currency to and receipts of currency from circulation and the number of unfit notes destroyed at the Reserve Banks. Board staff estimates the number of notes the Board will order from the BEP to meet demand based on monthly monitoring, forecasts of growth rates for payments of currency to circulation and receipts of currency from circulation, operational factors, and other policy considerations. Historically, over 90 percent of the notes that the Board orders each year replace unfit currency that Reserve Banks receive from circulation.

The currency budget process is as follows:

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