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The Federal Reserve Should Move Faster To Eliminate Subsidy of Check Clearing Operations

GGD-82-22 Published: May 07, 1982. Publicly Released: May 07, 1982.
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Highlights

GAO undertook a study to determine whether the Federal Reserve System's implementation of pricing for check clearing and automated clearinghouse services had achieved its objective of pricing services without subsidy in a timely manner.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Federal Reserve System The Board of Governors of the Federal Reserve System should review and modify prices, where appropriate, at least every 6 months until sufficient experience is gained to be certain that financial targets can be realized.
Closed – Not Implemented
Policies adopted by the Federal Reserve System should eliminate subsidies, thereby making the recommendation moot.
Federal Reserve System The Board of Governors of the Federal Reserve System should compare actual volume and costs with prior estimates at least quarterly for each district and office and take necessary action to bring costs and revenues into line.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Federal Reserve System The Board of Governors of the Federal Reserve System should prepare financial statements for use in the Annual Report and elsewhere that show clearly both the revenues and expenditures associated with priced services. Such statements should: (1) indicate the balance between revenue and expenses by major service line; and (2) show the difference between revenues and expenses for pricing services when the private sector adjustment factor is included as an expense. If expense data on priced services are not separately identified on the standard financial statement of earnings and expenses of Federal Reserve banks, a footnote or memorandum note to such statement should indicate where this information can be found.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Federal Reserve System The Board of Governors of the Federal Reserve System should review the structure of check-clearing prices, especially prices set by district rather than by office and prices for lower value checks, to be certain that the prices make maximum contribution toward achieving efficient, unsubsidized check-clearing services.
Closed – Not Implemented
The policies now being implemented represent judgements about the types of services to be offered; further work must take these new policies as a base.
Federal Reserve System The Board of Governors of the Federal Reserve System should move immediately to set a definite timetable for pricing float at the rate for federal funds. Implementation of float pricing should begin at the earliest date practicable. Pricing does not need to be delayed until float has been virtually eliminated by operational improvements.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Federal Reserve System The Board of Governors of the Federal Reserve System should change its policy of subsidizing the commercial use of its automated clearinghouse network. Unless the Federal Reserve can demonstrate that a price less than current average cost is economically justified in achieving a greater volume or reduced loss, the price should be set on the same average cost basis as other prices. If a price less than average cost is economically justified, the amount of such subsidy should be capitalized and amortized over subsequent years.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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Topics

Bank managementBanking lawCheck disbursement or controlCost controlFederal reserve banksInformation systemsProgram evaluationSubsidiesFederal reserve boardPrivate sector