March 17, 2006
Approval of policy changes to Federal Reserve cash services policy
For immediate release
The Federal Reserve Board on Friday announced the approval of policy changes that seek to reduce the overuse of Federal Reserve Bank cash-processing services by providing incentives for depository institutions to recirculate currency among their customers. The Reserve Banks estimate that the changes to the cash services policy could affect approximately 150 to 225 depository institutions with high-volume currency operations.
The changes are intended to reverse a shift by depository institutions away from traditional patterns of currency activity toward greater reliance on Reserve Bank cash processing. The Federal Reserve expects depository institutions to recirculate to their customers fit currency deposited with them and to deposit only excess or unfit currency with Federal Reserve Banks. To promote the recirculation of fit Federal Reserve notes by depository institutions, two elements have been added to the existing cash services policy. First, a custodial inventory program will permit depository institutions to transfer a percentage of the $10 and $20 notes in their vaults to the books of the Federal Reserve, allowing the institutions to reduce the size and frequency of their deposits of currency to and orders from the Reserve Banks. This incentive will be coupled with a fee charged to depository institutions that deposit fit $10 or $20 notes at a Reserve Bank and order the same denomination, above a de minimis amount, during the same business week.
The Reserve Banks will put the policy changes into effect in two phases. In the first phase, the custodial inventory program will be implemented for eligible participants. About one year later, in the second phase, the Reserve Banks will begin assessing the recirculation fee after they have put in place a currency quality policy to prevent deterioration in the quality of currency in circulation.
The Reserve Banks expect to begin accepting requests to participate in the custodial inventory program in May 2006, with program operations beginning in July 2006. The assessment of fees is expected to begin in July 2007.
Additional information about implementation of the policy changes will be published soon on the Federal Reserve Financial Services web site, http://www.frbservices.org/Cash.
The Board's notice is attached.