March 31, 2009
Board requests public comment on proposed changes to the methodology for calculating the private sector adjustment factor
For immediate release
The Federal Reserve Board on Tuesday requested public comment on proposed changes to the methodology for calculating the imputed costs, collectively known as the private sector adjustment factor (PSAF), that are considered when setting fees and measuring cost recovery for certain payment services provided to depository institutions (DIs). The comment period ends on May 29, 2009.
Specifically, the Board requests comment on its proposal to replace the current correspondent bank model underlying the PSAF calculation with a model based on elements derived from publicly traded firms more broadly. The Board is considering a new methodology because the recent implementation of the payment of interest on DI required reserve balances and excess balances held at Reserve Banks and the subsequent reduction in clearing balances held at Reserve Banks have changed the priced services balance sheet to more closely reflect publicly traded firms more generally rather than correspondent banks. Any change to the methodology could be effective as early as the 2010 pricing process.
The Monetary Control Act of 1980 requires the Federal Reserve to set fees for the services it provides to depository institutions at a level sufficient to recover, over the long run, the actual costs of providing these services, as well as the imputed costs and profits. The PSAF is an allowance for imputed costs, including financing costs, return on equity capital, taxes, and certain other expenses that are not explicitly incurred by the Reserve Banks but would be incurred by a private business firm providing the services. The methodology underlying the PSAF is reviewed periodically to ensure that it is appropriate and relevant in light of changes that may have occurred in Reserve Bank priced-services activities, accounting standards, finance theory, and regulatory and business practices.
The Board's notice is attached.