Financial Services Policy Committee
May 31, 2006
Federal Reserve Banks Announce Changes To Increase Check Service Efficiency
For immediate release
Minneapolis, Minn.--The Federal Reserve Banks today announced changes to their check operations as consumers and businesses continue the shift from using paper checks toward electronic payments. As part of these changes, the Federal Reserve Banks will discontinue check processing at locations in San Francisco, Kansas City, Mo., and Helena, Mont. Volume from these locations will be shifted to other Reserve Bank check processing centers. No firm date for the transition has been determined, but it is expected to take place in 2007 or the first half of 2008.
"The changes announced today will help to ensure ongoing efficiency improvements for the Reserve Banks' check processing operations while we continue to provide high-quality services to depository institutions throughout the country and further encourage the greater use of electronics within the nation's check collection system," said Gary Stern, chairman of the Reserve Banks' Financial Services Policy Committee and president of the Federal Reserve Bank of Minneapolis. "These changes will help the Reserve Banks reduce our check service operating costs in line with the continuing shift in consumer and business preferences for electronic payments. In addition, these changes support our long-term business strategy to use the authority provided by Check 21 to collect more checks electronically, reducing the reliance on the physical transportation of checks."
Today's announcement marks the Reserve Banks' fourth annual review of their check infrastructure. Since 2003, the Reserve Banks have reduced the locations where they process checks from 45 to 23 as of today. An additional two locations, previously announced, will no longer process checks, further reducing the number to 21. After the changes announced today are completed, the Reserve Banks will process checks from 18 locations nationwide.
The new round of restructurings will transfer check processing operations from three locations: San Francisco to Los Angeles, Kansas City to St. Louis, and Helena to Denver. This decision impacts the Canadian check collection service provided by the Helena office. An announcement regarding the transfer of the Canadian check collection service to another Reserve Bank will be made by the end of 2006. Additionally, the Reserve Banks will streamline their check adjustment function, discontinuing adjustments at the Detroit, Helena, Houston, Memphis, Tenn., and San Francisco offices. (The term "check adjustments" refers to the part of the check processing operation in which check processing errors are resolved.)
As a result of the action announced today, the Reserve Banks will reduce their overall check staff by approximately 280 positions, representing about 8 percent of the Reserve Banks' current check employees. Some staff reductions may occur through attrition and there may be some opportunities for reassignment. To assist affected staff, the Reserve Banks will offer a variety of programs, including separation packages, extended medical coverage, and career transition assistance. The Reserve Banks estimate that they will add approximately 150 positions in locations that will be receiving check processing and adjustments volume.
As a direct result of previous restructuring efforts and other efficiency improvements implemented since 2003, the Reserve Banks earned revenues in 2005 that exceeded the actual and imputed costs of providing check services to depository institutions as well as their targeted level of profitability for the first time in several years. But check volumes have continued to decline, and further decline is anticipated in the coming years. The most recent Federal Reserve study of the nation's payment system revealed that about 37 billion checks were paid in the United States in 2003--down from 42 billion in 2001 and 50 billion in 1995--as electronic payments, including those made by credit cards, debit cards, and automated clearinghouse transactions, increased considerably. Further Reserve Bank restructuring efforts will be necessary as check volumes continue to decline and as more depository institutions begin to collect checks electronically using the authority provided by Check 21.
The Federal Reserve Banks' long-term check processing strategy is to reduce costs and restructure their check processing operations in line with declining check volumes while encouraging the greater use of electronics in the collection of checks. This strategy will allow the Reserve Banks to meet the expectations of the 1980 Monetary Control Act. That act requires the Federal Reserve to set prices to recover, over the long run, its total operating costs of providing payment services to financial institutions, as well as the imputed costs it would have incurred and the profits it would have expected to earn had the services been provided by a private business firm.
Federal Reserve System
2006 Check Restructuring
Federal Reserve check processing locations: The Reserve Banks today process checks at 23 sites nationwide with two more sites (previously announced) on target to discontinue operations in addition to the three locations identified in today's announcement.
Staff levels: The Federal Reserve System, including the Board of Governors, employs over 21,000 staff nationwide; approximately 3,400 of these employees work in the check function.
National check volumes: By Federal Reserve estimates, roughly 37 billion checks were paid in the United States in 2003, down from about 42 billion in 2001 and 50 billion in 1995 (based on data from the Reserve Banks' latest available payments study). The Reserve Banks handled over 11 billion checks in 2005.
Listing of specific Federal Reserve locations
District 1: Boston, Mass. (head office, no check processing); Windsor Locks, Conn.
District 2: New York City, N.Y. (head office; a payments operations center is located in East Rutherford, N.J., no check processing)*; Buffalo, N.Y. (branch, no check processing); Utica, N.Y.
District 3: Philadelphia, Pa. (head office)
District 4: Cleveland, Ohio (head office); Cincinnati, Ohio (branch); Pittsburgh, Pa. (branch, no check processing)
District 5: Richmond, Va. (head office, no check processing); Baltimore, Md. (branch); Charlotte, N.C. (branch)
District 6: Atlanta, Ga. (head office); Birmingham, Ala. (branch, no check processing); Jacksonville, Fla. (branch); Miami, Fla. (branch, no check processing); Nashville, Tenn. (branch, no check processing)*; New Orleans, La. (branch, no check processing)
District 7: Chicago, Ill. (head office; the payments center is located at Midway Airport); Detroit, Mich. (branch, no check processing); Des Moines, Iowa
District 8: St. Louis, Mo. (head office); Little Rock, Ark. (branch, no check processing); Louisville, Ky. (branch, no check processing); Memphis, Tenn. (branch)
District 9: Minneapolis, Minn. (head office); Helena, Mont. (branch)**
District 10: Kansas City, Mo. (head office)**; Denver, Colo. (branch); Oklahoma City, Okla. (branch, no check processing); Omaha, Neb. (branch, no check processing)
District 11: Dallas, Texas (head office); El Paso, Texas (branch, no check processing); Houston, Texas (branch, no check processing); San Antonio, Texas (branch, no check processing)
District 12: San Francisco, Calif. (head office)**; Los Angeles, Calif. (branch); Phoenix, Ariz. (cash processing facility); Portland, Ore. (branch, no check processing); Salt Lake City, Utah (branch, no check processing); Seattle, Wash. (branch)