1. Conducting the nation�s monetary policy by influencing money and credit conditions in the economy in pursuit of maximum employment and stable prices
   
   
2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation�s banking system, maintaining the stability of the financial system, and containing systemic risk that may arise in financial markets
   
   
3. Protecting the credit rights of consumers and encouraging banks to meet the credit needs of consumers, including those in low- and moderate-income neighborhoods
   
   
4. Playing a major role in operating the nation�s payment systems
   
   
5. Providing certain financial services to the U.S. government, the public, financial institutions, and foreign official institutions
   

A major component of the System is the Federal Open Market Committee (FOMC), which is made up of the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and presidents of four other Federal Reserve Banks, who serve on a rotating basis. The FOMC is charged under law with overseeing open market operations, the principal tool of monetary policy. The FOMC also directs operations undertaken by the Federal Reserve in foreign exchange markets.

The Federal Reserve System is an independent central bank, but only in the sense that its decisions do not have to be ratified by the President or anyone else in the executive branch of government. The entire System is subject to oversight by the Congress because the Constitution gives to the Congress the power to coin money and set its value�and that power was delegated to the Federal Reserve by the Federal Reserve Act. The Federal Reserve works within the framework of the overall objectives of economic and financial policy established by the government; therefore, the description of the System as �independent within the government� is more accurate than �independent.�

The Congress chartered the twelve Federal Reserve Banks as operating arms of the central banking system. Each Reserve Bank is a separate legal entity whose makeup and organization incorporate both public and private elements. As part of the Federal Reserve System, the Banks are subject to oversight by the Congress. Each Reserve Bank has its own board of nine directors chosen from outside the Bank, as provided by law. The Board of Governors exercises broad authority over the operations and activities of the Federal Reserve Banks. This authority includes oversight of the Banks� priced financial services; fiscal agency and depository services; and examination and supervision of state member banks, bank holding companies, and foreign bank organizations operating in the United States. Each Reserve Bank must submit its annual budget to the Board of Governors for approval, and the appointment and salary of its president are subject to Board approval.

As required by the GPRA, this plan is independent of other related plans. However, numerous documents, when used in conjunction with this plan, give a more detailed picture of the planning, budget, operations, and performance of the System. As required by the Federal Reserve Act, the Board submits to the Congress an annual report that describes in detail the operations of the System for the previous year. Since 1985 the System has also provided the Congress with a supplement, the Annual Report: Budget Review. This document provides a detailed explanation of the plans and resources contained in the approved budgets of the Board and the Reserve Banks. The most recent versions of these two documents were provided to the Congress in April 2004.

The mission of the Board is to foster the stability, integrity, and efficiency of the nation�s monetary, financial, and payment systems to promote optimal macroeconomic performance.

Values

The following values of the Board guide its organizational decisions and its employees� actions.

• Public interest. In its actions and policies, the Federal Reserve seeks to promote the public interest. It is accountable and responsive to the general public, the U. S. government, and the financial community.
  
  
• Integrity. The Federal Reserve adheres to the highest standards of integrity in its dealings with the public, the financial community, and its employees.
  
  
• Excellence. The conduct of monetary policy, responsibility for bank supervision, and maintenance of the payment system demand high-quality analysis, high-performance standards, and a secure, robust infrastructure. The pursuit of excellence drives recruitment, selection, and retention policies for Federal Reserve employees.
  
  
• Efficiency and effectiveness. In carrying out its functions, the Federal Reserve System is continually aware that its operations are supported primarily by public funds, and it recognizes its obligation to manage resources efficiently and effectively.
  
  
• Independence of views. The Federal Reserve values the regional nature of the System as well as the diversity of its employees; input from a variety of sources; and the independent professional judgment that is fostered by the System�s highly valued regional structure. It relies on strong teamwork to mold independent viewpoints into coherent, effective policies.

1. Conduct monetary policy that promotes the achievement of maximum sustainable long-term growth and the price stability that fosters that goal
   
   
2. Promote a safe, sound, competitive, and accessible banking system and stable financial markets
   
   
3. Enforce the consumer financial services laws fully and fairly, protect and promote the rights of consumers under these laws, and encourage banks to meet the credit needs of consumers, including those in low- and moderate-income neighborhoods
   
   
4. Foster the integrity, efficiency, and accessibility of U.S. payment and settlement systems
   
   
5. Provide high-quality professional oversight of the Reserve Banks
   

The Board, like the framers of the Federal Reserve Act, considers the continuance of its budgetary independence directly relevant to the Board�s independence in managing monetary policy. To maintain budgetary independence, the Board believes that it must demonstrate effective and efficient use of its financial resources. Resource management begins with a clear mission statement, identification of goals, and a review of factors that might affect the long-term attainment of the goals and of possible responses to those factors. With the establishment of objectives to attain those goals and identification of the resources needed to accomplish them, the Board develops the budget necessary to implement the strategic plan.

Strategic planning is a critical factor in ensuring the long-term effectiveness of Board operations and minimizing costs. Effectiveness is enhanced through timely identification of threats and of opportunities to improve operations. Efficiency is enhanced by early identification of issues and timely responses. Major factors affecting the current strategic plan include the following:

1. Changes in Federal Reserve System structures (Financial Services and Federal Reserve Information Technology) require our attention in terms of oversight and governance issues, although direct effect on the current Board budget is minimal.
   
   
2. The need to sharpen our management model to
   • identify potential noncore activities,
   • streamline reporting channels,
   • develop improved performance metrics for each division and major Board function, and
   • provide comparative Boardwide management data to senior staff.
   
   
   
3. Continuing advances in automation and telecommunication technologies that will
   • reduce reaction time available to address systemic issues;
   • further change the complexity of financial products;
   • require and make possible enhanced systems for identifying, measuring, and pricing risk;
   • improve capabilities to gather, analyze, and share data;
   • require increased standardization of System supervision and regulation automation tools and databases and improved coordination of plans, strategies, actions, and information sharing with other domestic and foreign regulators; and
   • provide significant opportunities to improve communication with the public.
     
     
4. The need to monitor and manage risk associated with increasing security costs and �regulatory burden.�
   
   
5. The need for actions and policies that attract and maintain a highly motivated, properly trained, and fairly compensated professional workforce.
   
   
6. The need for contingency plans related to disaster recovery and the safety of personnel and information because of continued security threats.
   
   
7. The current state of the U.S. and foreign economies and the need to manage diverse views on the effect of the federal deficit on Board operations and expenses.

As technological and other changes accelerate, planning is essential to the effective and efficient conduct of the Board�s operations. A particular challenge to government organizations in this regard is determining the appropriate measures of performance. The Board�s strategic planning effort recognizes key differences between government and private-sector strategic planning and results measurement. Private planning can use measures of cost and revenue derived from prices determined in competitive markets; the results of that planning are reflected in the ability of the private entity to prosper over time. The government does not have direct competition in certain areas and has a monopoly in others (monetary policy, for example), and establishing a proxy for costs and prices is extraordinarily difficult. Moreover, the results are judged relative to public policy objectives embodied in law, which often are not readily measurable. Nonetheless, the Board tries to accomplish its mission effectively while creating the efficiencies that come from strategic planning, recognizing that analogies are just that. Thus, the Board�s central planning objective is oriented toward achieving effectiveness and efficiency specific to the functions it serves.

While many aspects of the Board�s mission are unique to the organization, the Board does not operate in a vacuum. To coordinate its activities, the staff works closely with a broad variety of organizations and individuals on a daily basis. Regular meetings with senior officials from the U.S. Department of the Treasury, regulatory agencies such as the Securities and Exchange Commission, and other executive branch agencies help ensure consistency of purpose and coordination of actions. One area of the Board�s mission, supervision and regulation of financial institutions, is shared with other regulatory agencies. As required by the Government Performance and Results Act (GPRA), and in conformance with past practice, the Board has worked closely with the other federal agencies to consider plans and strategies for programs such as bank supervision that transcend the jurisdiction of each agency. Coordination of activities with the U.S. Department of the Treasury and other agencies is evident throughout both the strategic and performance plans. Given the degree of similarity in missions and the existence of the Federal Financial Institutions Examination Council (FFIEC), the most formal effort has occurred with the other depository institution regulatory agencies (Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision). The FFIEC promotes uniformity in the supervision of financial institutions by the five federal regulatory agencies. The FFIEC was established in 1979 pursuant to title X of the Financial Institutions Regulatory and Interest Rate Control Act of 1978. It is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions and to make recommendations to promote uniformity in the supervision of financial institutions. In addition, the council provides uniform examiner training and has taken a lead in developing standardized software needed for major data collection programs to support the requirements of the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA). These actions have eliminated redundancy and lowered costs and, in the case of the HMDA and the CRA, have significantly lowered compliance costs while enhancing public access to the data.

In connection with the GPRA, a coordinating committee of the depository institution regulatory agencies was created to address and report on issues of mutual concern. The interagency working group has been meeting since June 1997 to work on issues related to those general goals and objectives that cross agency functions, programs, and activities. The results of the interagency coordination, whether effected through the FFIEC, the coordinating group, or interaction between staff, have been positive and have yielded better plans, creating substantial benefits to the public.

In addition, the Federal Reserve Banks provide a wide array of financial services for the U.S. government pursuant to the Federal Reserve Act, which provides that, when required by the Secretary of the Treasury, Federal Reserve Banks shall act as fiscal agents and depositories of the United States. The Reserve Banks provide these services, primarily for the U.S. Department of the Treasury, at the direction of the agency principals and at service levels specified by them. Generally, the Reserve Banks� expenses associated with fiscal agency and depository services are reimbursed by the Treasury and other agencies.

The Reserve Banks and the Treasury work collaboratively to develop strategic plans, resource needs, and service levels. The Reserve Banks provide effective and efficient fiscal agency and depository services, often in connection with the provision of other financial services. The Treasury, however, has responsibility for determining the levels of service and setting the standards under which the Reserve Banks provide these services.

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• Staff will provide periodic briefings and written reports to policymakers, analyzing incoming economic data. Staff will also prepare ad hoc analyses, as needed, to address special questions.
  
  
• Staff will regularly provide formal, quantitative forecasts for use by policymakers.
  
  
• Policymakers and staff will utilize extensive contacts in the private sector to obtain timely information about tendencies in the economy and in financial markets. The Beige Book, summaries prepared by Reserve Bank staff, will be one source of such information.
  
  
• Policymakers and staff will maintain close contacts with officials in international organizations and at foreign official institutions to remain current on economic developments and policies abroad.
  

• Staff will undertake research into the broad range of topics relevant to the conduct of monetary policy. In the period ahead, this research will focus especially on the consequences for the behavior of the economy of low rates of inflation, advancing technology, financial market innovation and deregulation, and globalization.

• The Federal Open Market Committee will seek, through the operations of the Trading Desk at the Federal Reserve Bank of New York, to effect changes in money market conditions consistent with the longer-term objectives of monetary policy.

• The Board will seek to reduce risks to the U.S. economy and financial system from external shocks and to improve stability in domestic and international financial markets.
  
  
• The Board will provide leadership in the evolution of international institutions and arrangements in response to the changing shape of the world economy.
  
  
• Staff research will contribute to international efforts to understand the origins and consequences of, and develop effective responses to, international economic and financial disruptions.
  

• Twice a year, the Board will report formally to the Congress on its monetary policy plans. The Board will also seek to improve public understanding of economic developments and policy through congressional testimony, speeches, and other means.
  
  
• The Board will publish data on monetary and financial market developments and on industrial production and capacity utilization to inform the public about the environment in which the Federal Reserve is operating.
  

Quality of staff is a major issue in meeting the analytical needs of the Board. Almost all economists and statisticians have advanced degrees. Highly qualified research assistants support the economists and statisticians. To attract and retain the quality staff necessary to meet the Board�s objectives, the Board offers a compensation package designed to offer some degree of comparability with the market.

The monetary policy portion of the division budget for 2004-05 is approximately $70.7 million. The largest component of the budget is $56.6 million for salaries, retirement, and insurance for staff in the 275 budgeted positions.

The division is responsible for managing two major data surveys. (The cost of the surveys, $10.0 million, is included in the Extraordinary Items Budget.) The Survey of Consumer Finances will provide an update of a data series exploring household assets and liabilities, consumer spending, credit use, and other factors. The Survey of Small Business Finance will update a data series exploring small-business balance sheets, income statements, and access to credit and other financial services.

The division budget for the two-year period is $23.1 million, $16.2 million of which is for salaries, retirement, and insurance for a budgeted staff of 68. Of the three monetary policy divisions, the proportion of the budget used for automation resources in this division is equivalent to those in the Division of Research and Statistics, with $4.0 million budgeted for this purpose.

The Division of International Finance provides the Board, the FOMC, and other System officials with assessments of current and prospective international economic and financial developments. Staff members evaluate and forecast major economic and financial developments abroad, developments in foreign exchange and other international asset markets, and U.S. international transactions. They also analyze international banking activities and their implications. The monetary policy portion of the two-year budget for the division is $25.4 million, again largely for salary, retirement, and insurance costs for 116 budgeted positions.

Federal Reserve Board Expenses and Budget
Monetary Policy
Millions of dollars

Macroeconomic performance is monitored on the basis of a broad range of indicators, including both quantitative and qualitative information. Based on extensive data collection and analysis, the staff updates its analyses of necessary courses of action appropriate to meeting the monetary policy mission. The financial markets provide a daily barometer on the nation�s economic status, which includes a component for the actions of the Board. Eight times a year, the FOMC formally meets to review the latest data and staff analyses and makes any necessary adjustments in policy. Semiannually, in its monetary policy report, the Board formally reviews the state of the economy with the Congress. The Chairman and other members of the Board testify on particular aspects of the economy on an ongoing basis.

One set of data watched closely by the Board is the set of statistics describing price increases. The Board pays careful attention to the Consumer Price Index, Producer Price Index, Gross Domestic Price Deflator, and other measures of inflation to gauge its success in maintaining the price stability seen as important to the long-term economic well-being of the country. Because the tools used to support price stability take some time to have an effect, data that help to forecast changes in prices are used to help guide policy. These data include measures of industrial output, wage increases, hours worked, unemployment, and a host of other measures. As part of the strategy to maintain price stability, the Board works with other government and private institutions in an effort to improve the quality of the economic data used for these policy decisions. Funding is included in the budget for economic surveys, studies of the methodologies of calculating price changes, and a review of the effect of changes in the price and quality of automation and telecommunications equipment.

Enforce the consumer financial services laws fully and fairly, protect and promote the rights of consumers under these laws, and encourage banks to meet the credit needs of consumers, including those in low- and moderate-income neighborhoods.

• Maintain ability and capacity as a bank supervisor and a central bank to ensure that emerging financial threats can be identified early and successfully resolved.

• Focus supervisory efforts and resources on areas of highest risk to individual organizations and the financial system as a whole, and develop effective regulations to promote a safe and sound banking environment.
  
  
• Encourage banking organizations to develop sound risk-management practices, including strong internal controls, active boards of directors, and senior management oversight and accountability.
  
  
• Promote sound banking and effective supervisory practices among developed and emerging countries through ongoing coordination with international supervisory bodies and through training programs for international supervisors and bankers.
  

• Heighten the positive effect of market discipline on banking organizations by encouraging improved disclosures, accounting standards, risk measurement, and overall market transparency.
  
  
• Harness technology in carrying out responsibilities to improve supervisory efficiency and to reduce burden on banking organizations.
  
  
• Maintain an understanding of the effect of financial innovation and technology on the operations and risk profile of banking organizations and the payment system; ensure that supervisory programs accommodate prudent advances that benefit consumers and businesses or improve risk management.
  
  
• Refine or eliminate unnecessary or ineffective policies, procedures, regulations, or restrictions, and ensure that reforms are effectively implemented, consistent with safety and soundness of banking organizations.
  

• Encourage the coordination of supervisory activities between various bank and functional regulators and foreign supervisors.
  
  
• Implement the bank holding company framework for incorporating consumer compliance risk into the overall risk profile for supervised institutions.
  
  
• Develop strategies to assess a supervised institution�s overall adherence to applicable laws, rules, regulations, policies, and guidelines.
  
  
• Continue programs that promote understanding of supervision-related legislation.
  
  
• Ensure that supervision staff is appropriately trained to detect potential noncompliance with laws, regulations, and policies.
  

• Ensure that the consumer compliance supervision and consumer complaint investigation programs are of high quality and that they are consistent throughout the system.

• Review various consumer regulations for which the Board has rule-writing authority, including Regulation Z (Truth in Lending) and Regulation DD (Truth in Savings).
  
  
• Implement legislative revisions to the Fair Credit Reporting Act.
  

• Ensure fair access to financial services through vigorous enforcement of the Equal Credit Opportunity, Fair Housing, Community Reinvestment, and Home Mortgage Disclosure Acts; ensure the prudent drafting and interpretation of the regulations that implement these acts; and encourage state member bank involvement in community development activities.
  
  
• Investigate potential discrimination-related issues raised by compliance examinations or consumer complaints and refer these cases to the Department of Justice or the Department of Housing and Urban Development, as applicable.
  
  
• Review all Board-action banking applications that present fair lending issues, as well as those with adverse compliance ratings, adverse Community Reinvestment Act ratings, or applications subject to Community Reinvestment Act protests.
  

• Provide leadership through the community affairs program to further the understanding of financial service issues affecting low- and moderate-income persons and geographies.
  
  
• Conduct ongoing outreach and engage in educational and technical assistance targeting financial institutions, community organizations, government entities, and the public.
  
  
• Develop publications and products that highlight community reinvestment activities, feature successful community development programs, and highlight best practices.
  
  
• Participate in conferences, training sessions, and presentations that provide information and guidance on community investment and development opportunities.
  
  
• Use advisory services to provide technical information on community and economic development, including information on the investments by bank and bank holding company community development corporations, public private affordable housing development partnerships, small business lending, and financial education.
  

1. Identify and resolve supervisory and financial problems in a timely manner, working alone or in cooperation with other authorities, to minimize disruptions to the financial and payment systems and the economy more generally.
   
   
2. Minimize net losses to the Bank Insurance Fund (BIF) from state member banks consistent with trend data associated with prevailing economic conditions.
   
   
3. Complete financial institution examinations as required by statute and dictated by review of supervisory data and CAMELS ratings, experience, and an assessment of current risks to the financial industry.
   
   
4. Complete reports of examinations within established Federal Reserve timeframes.
   
   
5. Process applications within Board-established timeframes.
   
   
6. Conduct consumer compliance and CRA examinations in accordance with Board and statutory requirements.
   
   
7. Process consumer complaints in accordance with Board-established timeframes.
   
   
8. Review and update various consumer regulations for which the Board has rule-writing authority.
   
   
9. Promote equal access to banking services through various avenues.
   
   
10. Promote community development in underserved areas through various avenues.
    

Although the terms bank supervision and bank regulation are often used interchangeably, they actually refer to distinct but complementary activities. Bank supervision involves monitoring, inspecting, and examining banking organizations to assess their condition and compliance with relevant laws and regulations. When an institution is found to be in noncompliance with policy and regulations, the Federal Reserve may use its supervisory authority to take formal or informal action to have the institution correct the problems. Bank regulation entails making and issuing specific regulations and guidelines governing the structure and conduct of banking, under authority of legislation.

The knowledge gained from bank examinations, reviews of loan portfolios, and oversight of lending terms and activity is a vital input to the decisionmaking process for the Board�s monetary policy activities. Likewise, the microeconomic research capabilities of the Board provide valuable support to the supervision and regulation function.

The Federal Reserve shares supervisory and regulatory responsibilities with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and various state banking agencies, and foreign banking authorities for the international operations of U.S. banks and the operations of foreign banking organizations in the United States. This structure has evolved partly out of the complexity of the U.S. financial system, with its many kinds of depository institutions and numerous chartering authorities, and from federal and state laws and regulations designed to remedy problems that the U.S. commercial banking system has faced over its history.

At the most senior levels, the work and plans of the Federal Reserve have been closely coordinated with these agencies. In addition, Board staff members have worked with staff from the other financial regulatory agencies to review cross-cutting issues. Plans have been shared, and the discussions of issues are reflected in the submissions of the Board and other regulators. Finally, the Board has relied heavily on the Federal Financial Institutions Examination Council to assist with the coordination of safety-and-soundness and consumer issues. Examples include the development of common software to reduce costs and industry burden, policy development, critical examiner training, and common regulatory forms.

The Division of Banking Supervision and Regulation is responsible for (1) keeping the Board informed about current and prospective developments in bank supervision and banking structure; (2) coordinating the System's bank supervision and examination activities, including policy development, data gathering, preparation of hardware and software standards and requirements for software development, and training; (3) processing applications for prior consent to form or expand bank holding companies or make other changes in banking structure; and (4) administering certain regulations.

The division budget for the two-year reporting period is $84.4 million. The largest component of the budget is $56.5 million for salaries, retirement, and insurance for staff in 238 positions. Software development and maintenance and mainframe usage are budgeted at $19.0 million to work with the FDIC to develop a Call Modernization report, to maintain the bank surveillance systems, and to provide access to data and analytical tools needed for timely policy analysis and recommendations. The budget includes approximately $1.5 million for microcomputers, appropriate software, and network connections needed to efficiently analyze the large quantities of microdata associated with banking.

The Division of Consumer and Community Affairs (DCCA) is responsible for enabling the Board to accomplish its responsibilities in the federal consumer protection area effectively. Those responsibilities include (1) preparing and interpreting regulations that are faithful to congressional directives and properly balance consumer protections and industry costs (in general, the consumer laws apply to all types of institutions--retailers, finance companies, mortgage bankers, and other nonbank businesses, as well as depository institutions); (2) developing proposals to improve these federal laws; (3) supporting and overseeing the Reserve Banks� supervisory efforts to ensure that compliance is fully and fairly enforced; (4) overseeing the Systemwide consumer complaint program to ensure thorough, prompt, and equitable treatment of the public; (5) assisting and monitoring the community affairs activity of the Federal Reserve System to produce a strong outreach program; and (6) reviewing bank and bank holding company applications for adverse CRA and compliance issues.

The DCCA budget for 2004-05 is $24.3 million, of which $20.1 million is for compensation expenses for eighty-one positions. The budget provides $2.1 million for automation resources purchased from the Division of Information Technology. These resources are required to gather, store, and evaluate data needed to analyze compliance issues associated with CRA, HMDA, and other legislation for which the division has enforcement responsibilities.

The Legal Division provides legal analysis and counsel in support of Board statutory and regulatory responsibilities. The focus of the effort is on the preparation, legal interpretation, and distribution of information concerning statutes, Board decisions, regulations, rules, interpretations, and proposed legislation. Approximately half of the Legal Division budget of $23.8 million is for support of the supervision and regulation function.

While primarily responsible for issues associated with monetary policy, the Division of Research and Statistics provides significant support to the supervision and regulation function. In the safety-and-soundness area, it provides data and analyses associated with (1) trading and positioning of securities, commodities, and derivative instruments; (2) quantifying credit risk within the examination process and the risk-based capital framework; (3) enhancing the Board�s understanding of key determinants of the performance of financial institutions, including profitability, efficiency, and their relationship to banking consolidation; and (4) establishing current and emerging developments affecting U.S. banking structure and performance, especially the Board�s responsibilities for assessing the antitrust and concentration implications of mergers and acquisitions. With regard to the consumer compliance area, the division provides technical assistance for implementing fair lending and other consumer compliance related issues.

Federal Reserve Board Staffing
Supervision and Regulation of Financial Institutions

2000-01 Actuals	2002-03 Actuals	2004-05 Budget
436	357	385

Note: Data show authorized positions as of year-end. Support and overhead positions are not allocated to the functional areas.

The financial accounting system and budget system are fully integrated to ensure that actual costs are measured and tracked against budgeted resources for the function. Budget and expense data are provided to the Congress and the public in the Annual Report: Budget Review. The financial statements of the Board are prepared in accordance with generally accepted accounting principles and are subject to external audit. The results are included in the Annual Report provided to the Congress and the public.

Data concerning the number of applications processed, the associated timeframes, and related statistical measures are gathered and provided to the Board and posted on the Board�s external web site. Aggregate data concerning CAMELS ratings, numbers of failures, causes of failures, and effect on the BIF are also gathered and provided to the public. Surveillance data gathered from routine reports are used to implement risk-based examinations, and the data are made available to the public through the Uniform Bank Performance Reports and the Bank Holding Company Performance Reports. Certain data submitted pursuant to the Home Mortgage Disclosure and Community Reinvestment Acts are also made available to the public and to financial institutions on diskette and CD-ROM.

Data associated with the financial exposure of each institution are used to develop risk profiles that in conjunction with CAMELS ratings from earlier examinations are used to determine the frequency and timing of examinations. Automated tools allow examiners to gather data required for the examinations from off-site locations to speed the process, reduce on-site examination time and associated burden and costs to the institution and the System, and format microdata of importance for monetary policy purposes.

Note: Actual results for objectives 3 and 5 have been updated for 2000 and 2001.

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Foster the integrity, efficiency, and accessibility of U.S. payment and settlement systems.

• Oversee strategic infrastructure projects, including Reserve Bank check restructuring, cash distribution, and web-based application development. Board staff is overseeing the Reserve Banks� strategies to return to and sustain full cost recovery, including efforts to reduce costs and improve efficiency by restructuring their physical check processing infrastructure. In addition, Board staff is assessing ways to most efficiently distribute and process cash within the economy and to oversee the development of web-based applications to support the delivery of Reserve Bank financial services.
  
  
• Oversee implementation of the Reserve Banks� channel migration strategies. Board staff will continue to oversee the System�s migration of its DOS-based Fedline electronic platform to a web-based channel for delivering financial service transactions and files to depository institutions. Board staff will continue to monitor efforts to build the infrastructure components and applications required to begin conversion of DOS-based Fedline customers to the new channel in 2004.
  

• Develop regulations implementing the Check Clearing for the 21st Century Act, also known as �Check 21� and monitor the development of associated industry standards. Check 21 was signed into law on October 28, 2003, and will become effective on October 28, 2004. Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation. The law facilitates check truncation by creating a new negotiable instrument called a substitute check which would permit banks to truncate original checks, to process check information electronically, and to deliver substitute checks to banks that want to continue receiving paper checks.
  
  
• Revise the Payments System Risk policy to incorporate international recommendations. Staff will recommend to the Board policy revisions to incorporate the Core Principles for Systemically Important Payment Systems and the Recommendations for Securities Settlement Systems, which are part of the Financial Stability Forum�s Compendium of Standards that have been widely recognized and endorsed by U.S. authorities as integral to strengthening global financial stability. In addition, the policy revision will introduce a revised risk-management framework that reflects current industry and supervisory risk-management approaches and extends the policy�s scope to include Reserve Banks� payment and securities settlement services.
  

• Analyze 2004 retail payments data. Board staff will continue to work with the Reserve Banks� Retail Payments Office on two surveys intended to complement the noncash retail payment research that was conducted in 2001. As part of this research, data will be collected on the number and value of check and other electronic payments in the United States for 2003. As evidenced in the earlier study, the U.S. check payments market has undergone significant changes in recent years. The data from the current study will update and enhance the Federal Reserve�s, the industry's, and the public's understanding of recent trends in the U.S. retail payments system.
  
  
• Conduct further analysis on consumer payment behavior using data from retailers. The Board conducts ongoing research investigating consumer payment choice using data from retailers. These data allow investigation of the relationships among grocery store purchases, demographic information about areas in which the retailers are located, and payment instrument choices at the point of sale.
  

1. Extent to which the Board completes all Reserve Bank reviews as scheduled; completes annual Reserve Bank examinations; and orders an external audit of Reserve Bank financial statements each year, as required by the Federal Reserve Act.
   
   
2. Extent to which issues raised by the Board regarding Reserve Bank operations, internal audit, or proposed or ongoing initiatives effect positive change within the Reserve Banks.
   
   
3. Extent to which the Board, working alone or in cooperation with other organizations, identifies significant operational or financial problems affecting the flow of large-value payments or book-entry securities transfers and resolves them in a way that minimizes disruption to the financial and payment systems specifically, and the economy more generally.
   
   
4. Forward final Check 21 regulations to the Board by summer 2004.
   
   
5. Request comment on revision to payment system risk policy as it applies to private-sector systems and incorporate recently adopted international standards in the second quarter of 2004; adopt final revised policy in 2005.
   
   
6. Monitor and ensure the full collateralization of Federal Reserve notes as defined by the Federal Reserve Act.
   
   
7. Include payments-related questions in the 2004 Michigan Survey; produce research results in 2005.
   
   
8. Produce research results from the depository institution check survey by the end of 2004; publish Bulletin article in 2005.
   
   
9. Extent to which the Board (through its oversight committees) is informed of important developments and issues in a timely and effective manner.
   
   
10. Respond timely to requests for policy interpretations, deviations, and exception requests from the Reserve Banks.
    

The oversight, research, and policy development related to this function are performed primarily by staff of the Board's Division of Reserve Bank Operations and Payment Systems, who represent a variety of disciplines. The workforce is largely composed of analytical staff with graduate degrees in public policy, business, finance, economics, or computer science, many of whom have experience at a Reserve Bank or within the private sector.

Oversee a planning and budget process that clearly identifies the Board's mission, results in concise plans for the effective accomplishment of operations, transmits to the staff the information needed to attain objectives efficiently, and allows the public to measure our accomplishments.

• In cooperation with individual divisions, review, evaluate, and revise as needed the objectives and goals developed during the 2004-05 planning process to prepare for the future.|
  
  
• Prepare portions of the Annual Report and the Annual Report: Budget Review to be published on the Board�s public website and forwarded to the Congress.
  
  
• Revise the Board�s planning and budget process to better incorporate voluntary compliance with the GPRA, to achieve more streamlined operations, and to reduce administrative costs while maintaining service levels. (The last objective may be achieved by revising procedures to eliminate unnecessary steps and by better automating remaining steps.)
  
  
• Provide management with information, data, and procedures to facilitate planning, budgeting, and financial decisionmaking, as well as procurement of goods and services, which result in effective and efficient Board operations.
  
  
• Utilize enhanced internal communications practices to promote information sharing, encourage effective management communications, and broaden awareness of goals and objectives.
  

Develop appropriate policies, oversight mechanisms, and measurement criteria to ensure that the recruiting, training, and retention of staff meet Board needs.

• Ensure that the Board�s compensation systems continue to reward and motivate employees as desired.
  
  
• Ensure that appropriate processes exist to facilitate Boardwide succession planning that minimizes disruption and maximizes knowledge transfer.
  

Establish, encourage, and enforce a climate of fair and equitable treatment for all employees regardless of race, creed, color, national origin, age, or sex.

• Develop, implement, and ensure compliance with policies, practices, and procedures which foster fair and equitable treatment of all staff.
  
  
• Monitor Board EEO training and awareness activities (including disability and sexual harassment awareness training; and EEO training for officers, managers, and supervisors), enhance career development, recruitment, outreach, and intern programs.
  
  
• Design and implement a new EEO web-based training program.
  
  
• Support special interest groups and sponsor ongoing programs and awareness activities.
  

Provide financial management support needed for sound business decisions.

• Manage the Board�s financial resources according to generally accepted accounting principles.
  
  
• Contract for an outside audit of the Board�s financial statements.
  
  
• Reduce risk consistent with prudent use of resources, by participating in an enterprise risk management system.
  
  

Provide cost-effective, secure information resources management services to Board divisions, support divisional distributed processing requirements, and provide analysis on information technology issues to the Board, Reserve Banks, other financial regulatory institutions, and central banks.

• Customer Projects
  Staff will provide timely, quality support for customer projects. Such projects are designed and funded by the client and include development and maintenance resources. For the 2004-2005 budget period, 77 percent of IT's labor budget falls into this category. Costs are billed through transfer pricing (a user charge system).
  
  
• Infrastructure Projects
  Investments in the IT infrastructure that are undertaken on behalf of all Board organizations. Examples include information security, disaster recovery, technical training programs, and e-mail and Internet services. For the 2004-2005 budget period, 16 percent of IT's labor budget falls into this category.
  
  
• General and Administrative (G&A)
  Activities required to manage the division and respond to requests from government agencies and the Inspector General. G&A items include expenses for officers, secretaries, and administrative costs to support the division's internal control structure. Although these activities and costs are derived from customer and Board requirements, they compete with requests from other divisions in the budget process. The division's G&A cost for 2004-2005 is 7 percent of the labor budget, as IT continues to reduce the division's secretarial and administrative support staff, abolish obsolete job families, and move vacant positions to cost centers where customer demand is urgent.
  

Efficiently provide safe, modern, secure facilities and necessary support activities conducive to efficient and effective Board operations.

• Continue to provide a work environment that is safe and conducive to the high level of productivity that is necessary for Board staff to accomplish assigned tasks.
  
  
• Protect and provide a safe and secure environment for staff and others on Board property.
  
  
• Train staff to recognize security problems and be able to evacuate or move to safe havens as necessary.
  
  
• Establish and provision relocation sites.
  

1. Maintain budgetary independence.
   
   
2. Complete a comprehensive review of the Board�s Performance Management Program and implement any desired changes.
   
   
3. Develop sufficient internal and external pools of qualified, diverse candidates with appropriate skills for all position postings.
   
   
4. Provide appropriate feedback to division directors via annual management reports.
   
   
5. Report measurable participation in EEO-sponsored training and awareness, career development, recruitment, outreach, and intern programs.
   
   
6. Establish a high quality and useful web-based training program.
   
   
7. Receive an unqualified opinion for the Board�s annual financial audit, and internal controls and compliance with laws and regulations are appropriate.
   
   
8. Enhance Boardwide physical security and capacity for disaster recovery to reduce the time needed to resume normal operations.
   
   
9. Complete the Martin Building Sprinkler project, analyze the feasibility study of renovating the Martin Building, and develop a long-range space plan for accommodating the Board�s workforce.
   
   
10. Complete the transition to an armed security force, including the development and implementation of appropriate institutional structures or organizations, policies, and procedures.

The support staff is committed to providing a high level of service to the line divisions that will assist in fulfilling the core missions of the Board. The human resources function makes a major effort to develop compensation policies that enable the Board to attract and retain a highly qualified staff. To this end, annual surveys and studies are conducted to ensure that salary and benefits are competitive with the market.

Much of the work performed at the Board is unique and requires extensive training programs for staff to develop requisite professional, technical, and automation skills. In recent years the importance of training has grown dramatically. Automation staff must strive to stay abreast of significant changes in automation and communication technology while maintaining their current workloads. However, the professional staff has also taken advantage of the opportunities offered by technology upgrades, using automation to handle increasing workloads, thereby limiting requirements for additional staff. The staff must also keep up with the challenges to the national and international financial systems posed by new financial products made possible by technological advances. It is critical that the staff understands the opportunities and risks associated with these new products. Finally, management training is necessary because many Board managers rose from technical positions. This training becomes increasingly critical as the Board�s workload, technology changes, tight budgets, and more complex human relations issues make management more complex.

The automation environment needed to support the Board�s mission helps attract staff who are able to use first-rate equipment and networks to access major economic databases to perform challenging assignments. The Board�s automation capabilities also reduce staffing requirements, lower overall costs, and improve responsiveness in dealing with time-sensitive issues. Outside access to networks and data allows staff to coordinate efforts and produce priority products when on travel or during nonwork hours. The mainframe communications system, which features secure-access capability, allows staff to take advantage of off-peak hours to maximize use of the Board�s investment.

A safe workplace that enhances productivity is a valuable asset to the Board. Maintaining safe and efficient facilities becomes increasingly expensive as the Eccles Building, built in 1933, and the Martin Building, completed in 1974, get older. Major infrastructure enhancements are in progress to maintain a safe and productive environment. Emergency planning, including work to provide backup electrical power, will continue. Actions to evaluate and, where necessary, enhance the security of facilities to provide for the safety of employees and continuity of operations are a priority.

Planning and budgeting are essential to the effective operations of the Board, particularly because of the complexity of its operations and its obligation to the public in the use and management of non-appropriated funds. Administrative and operational areas must engage in strategic and long-term planning to identify future challenges and to have trained and equipped staff in place to address these challenges. In addition to internally focusing on planning, the Board, with the Reserve Banks, developed the Strategic Framework, published in late 1996, to coordinate the strategic planning of all entities within the System. This document was the basis for the Strategic Planning Document submitted to the Congress in response to the Government Performance and Results Act.

The Board�s financial system, which follows generally accepted accounting principals, is audited by an independent outside auditor to ensure that financial statements provide a fair assessment of the Board�s financial situation. As part of that audit, managed by the Board�s Inspector General, internal controls are reviewed and a formal report is provided to the Board. To ensure efficiency, various components of the Board�s operations are subject to outside professional review.

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Resources: For the 2004-05 biennium, approximately $210.2 million in costs for 426 positions and allocated costs for support, facilities, and overhead. Support and overhead positions are not allocated to the functional areas. A more detailed discussion is included in the body of this plan, and a thorough discussion can be found in the Annual Report: Budget Review, provided to the Congress earlier this year.

Enforce the consumer financial services laws fully and fairly, protect and promote the rights of consumers under these laws, and encourage banks to meet the credit needs of consumers, including those in low- and moderate-income neighborhoods.

Resources: For the 2004-05 biennium, approximately $221.1 million in costs for 385 positions and allocated costs for support, facilities, and overhead. Support and overhead positions are not allocated to the functional areas. A more detailed discussion is included in the body of this plan, and a thorough discussion can be found in the Annual Report: Budget Review, provided to the Congress earlier this year.

Foster the integrity, efficiency, and accessibility of U.S. payment and settlement systems.

Objectives 1. Produce high-quality assessments of Federal Reserve Bank operations, projects, and initiatives to help Federal Reserve management foster and strengthen sound internal control systems and efficient and effective performance. 2. Develop sound, effective policies and regulations that foster payment system integrity, efficiency, and accessibility. Support and assist the Board in overseeing U.S. dollar payment and securities settlement systems against relevant policy objectives and standards. 3. Conduct research and analysis that contributes to policy development and increases the Board�s and others� understanding of payment system dynamics and risk

Performance Measures 1a. Extent to which the Board completes all Reserve Bank reviews as scheduled; completes annual Reserve Bank examinations; and orders an external audit of Reserve Bank financial statements each year, as required by the Federal Reserve Act. 1b. Extent to which issues raised by the Board regarding Reserve Bank operations, internal audit, or proposed or ongoing initiatives effect positive change within the Reserve Banks. 2a. Extent to which the Board, working alone or in cooperation with other organizations, identifies significant operational or financial problems affecting the flow of large-value payments or book-entry securities transfers and resolves them in a way that minimizes disruption to the financial and payment systems specifically, and the economy more generally. 2b. Forward final Check 21 regulations to the Board by summer 2004. 2c. Request comment on revision to payment system risk policy as it applies to private-sector systems and incorporate recently adopted international standards in second quarter 2004; adopt final revised policy in 2005. 2d. Monitor and ensure the full collateralization of Federal Reserve notes as defined by the Federal Reserve Act. 3a. Include payments-related questions in the 2004 Michigan Survey; produce research results in 2005. 3b. Produce research results from depository institution check survey by the end of 2004; publish Bulletin article in 2005. 4a. Extent to which the Board (through its oversight committees) is informed of important developments and issues in a timely and effective manner. (Pertains to all objectives) 4b. Respond timely to requests for policy interpretations, deviations, and exception requests from the Reserve Banks. (Pertains to all objectives)

Resources: For the 2004-05 biennium, approximately $97.3 million in costs for 197 positions and allocated costs for support, facilities, and overhead. Support and overhead positions are not allocated to the functional areas. A more detailed discussion is included in the body of this plan, and a thorough discussion can be found in the Annual Report: Budget Review, provided to the Congress earlier this year.

Resources: For the 2004-05 biennium, approximately $228.0 million in costs for 887 positions, facilities, and other costs. The expenses have already been allocated back to the Board�s core functions and are included in the costs shown for those functions. The positions have not been included in the position tables for the other functions.

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