Fed to Close Additional Check Processing Facilities

The Federal Reserve Banks has outlined their strategy to accommodate the evolution of the nations payments system from paper check processing to electronic processing, a development driven by a significant broad-based change in user preference. The Reserve Banks strategy entails launching new products and services to support the implementation of the Check 21 Act in October 2004, as well as streamlining its check-processing infrastructure by discontinuing check processing at locations to be announced later this year. Even with these changes, the Federal Reserve Banks will continue to provide check processing services on a national basis. In this effort, Reserve Banks will provide opportunities through their Check 21 products and services for financial institutions to make use of electronic check services as a means of reducing their overall check operating costs. These steps should also reduce the time during which industry participants and the Reserve Banks must support significant investments in dual processing platforms. As part of this strategy, the Reserve Banks also will undertake a thorough annual review of their existing check processing infrastructure, including potentially discontinuing paper check processing at some locations as the market evolves. Currently, the Reserve Banks are examining their existing check facilities and within the next few months will announce the discontinuation of some additional check-processing facilities through 2005. The criteria for decisions about infrastructure changes will closely parallel those used in the Reserve Banks check re-engineering initiative announced in 2003, and will rely on an evaluation of volume levels, business retention plans, local market impact and other data. Last year, the Fed announced a restructuring of its check processing operations from 45 to 32 sites by year-end 2004. In 2003, Reserve Banks check volume declined at about a 5 percent rate. For 2004, check volumes have declined at an accelerated pace compared to the same period last year. A 2001 Federal Reserve study revealed that about 42 billion checks were written that year in the United States, considerably lower than industry estimates. Those volumes are expected to continue to decline in coming years. The Reserve Banks will continue to assist the nations financial services industry by conducting research related to the nations payments system. The results of the most recent study will be available later this year. This long-term check processing strategy will allow the Reserve Banks to better meet the expectations of the 1980 Monetary Control Act. That act requires the Reserve Banks to set prices to recover, over the long run, their total operating costs of providing payment services to depository institutions, as well as the imputed costs they would have incurred and the imputed profits they would have expected to earn had the services been provided by a private business firm. As before, the Reserve Banks will offer a variety of programs to affected staff. These programs include separation packages, extended medical coverage and career transition assistance.