14146 Federal Register / Vol. 62, No. 57 / Tuesday, March 25, 1997 / Notices

County State Bank, West Point,

Nebraska.

C. Federal Reserve Bank of San

Francisco (Kenneth R. Binning,

Director, Bank Holding Company) 101

Market Street, San Francisco, California

94105-1579:

1. Eggemeyer Advisory Corp., San

Diego, California; Castle Creek Capital,

L.L.C., San Diego, California; Castle

Creek Capital Partners Fund - I, L.P.,

San Diego, California; and Monarch

Bancorp, Laguna Niguel, California; to

merge with California Commercial

Bankshares, Newport Beach, California,

and thereby indirectly acquire National

Bank of Southern California, Newport

Beach, California. In connection with

this application, Applicant also has

applied to acquire Venture Partners,

Inc., Newport Beach, California, and

thereby engage in custodial activities,

pursuant to § 225.25(b)(3)(ii) of the

Board’s Regulation Y.

Board of Governors of the Federal Reserve

System, March 19, 1997.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 97–7438 Filed 3-24-97; 8:45 am]

BILLING CODE 6210-01-F

Formations of, Acquisitions by, and

Mergers of Bank Holding Companies

The companies listed in this notice

have applied to the Board for approval,

pursuant to the Bank Holding Company

Act of 1956 (12 U.S.C. 1841 et seq.)

(BHC Act), Regulation Y (12 CFR Part

225), and all other applicable statutes

and regulations to become a bank

holding company and/or to acquire the

assets or the ownership of, control of, or

the power to vote shares of a bank or

bank holding company and all of the

banks and nonbanking companies

owned by the bank holding company,

including the companies listed below.

The applications listed below, as well

as other related filings required by the

Board, are available for immediate

inspection at the Federal Reserve Bank

indicated. Once the application has

been accepted for processing, it will also

be available for inspection at the offices

of the Board of Governors. Interested

persons may express their views in

writing on the standards enumerated in

the BHC Act (12 U.S.C. 1842(c)). If the

proposal also involves the acquisition of

a nonbanking company, the review also

includes whether the acquisition of the

nonbanking company complies with the

standards in section 4 of the BHC Act.

Unless otherwise noted, nonbanking

activities will be conducted throughout

the United States.

Unless otherwise noted, comments

regarding each of these applications

must be received at the Reserve Bank

indicated or the offices of the Board of

Governors not later than April 21, 1997.

A. Federal Reserve Bank of New

York (Christopher J. McCurdy, Senior

Vice President) 33 Liberty Street, New

York, New York 10045-0001:

1. BanPonce Corporation, and Poplar

International Bank, Inc., both of Hato

Rey, Puerto Rico; to acquire 100 percent

of the voting shares of National

Bancorp, Inc., Streamwood, Illinois, and

thereby indirectly acquire

AmericanMidwest Bank and Trust,

Melrose Park, Illinois.

B. Federal Reserve Bank of Atlanta

(Lois Berthaume, Vice President) 104

Marietta Street, N.W., Atlanta, Georgia

30303-2713:

1. PN Holdings, Inc., Ann Arbor,

Michigan; to become a bank holding

company by acquiring 100 percent of

the voting shares of Pelican National

Bank, Naples, Florida (in organization).

In connection with this application,

Applicant also has applied to acquire

Washtenaw Mortgage Company, Ann

Arbor, Michigan, and thereby engage in

making, acquiring, or servicing loans, or

other extensions of credit, pursuant to §

225.25(b)(1)(iii) of the Board’s

Regulation Y.

C. Federal Reserve Bank of Chicago

(James A. Bluemle, Vice President) 230

South LaSalle Street, Chicago, Illinois

60690-1413:

1. Parkway Bancorp, Inc., Harwood

Heights, Illinois, and Parkway

Acquisition Corporation, Harwood

Heights, Illinois; to acquire 100 percent

of the voting shares of Jefferson Holding

Corp., Chicago, Illinois, and thereby

indirectly acquire Jefferson State Bank,

Chicago, Illinois.

D. Federal Reserve Bank of Dallas

(Genie D. Short, Vice President) 2200

North Pearl Street, Dallas, Texas 75201-

2272:

1. Concordia Capital Corporation,

Vidalia, Louisiana; to become a bank

holding company by acquiring 100

percent of the voting shares of

Concordia Bank & Trust Company,

Vidalia, Louisiana.

Board of Governors of the Federal Reserve

System, March 20, 1997.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 97–7526 Filed 3-24-97; 8:45 am]

BILLING CODE 6210-01-F

Notice of Proposals to Engage in

Permissible Nonbanking Activities or

to Acquire Companies that are

Engaged in Permissible Nonbanking

Activities

The companies listed in this notice

have given notice under section 4 of the

Bank Holding Company Act (12 U.S.C.

1843) (BHC Act) and Regulation

Y, (12 CFR Part 225) to engage de novo,

or to acquire or control voting securities

or assets of a company that engages

either directly or through a subsidiary or

other company, in a nonbanking activity

that is listed in § 225.25 of Regulation

Y (12 CFR 225.25) or that the Board has

determined by Order to be closely

related to banking and permissible for

bank holding companies. Unless

otherwise noted, these activities will be

conducted throughout the United States.

Each notice is available for inspection

at the Federal Reserve Bank indicated.

Once the notice has been accepted for

processing, it will also be available for

inspection at the offices of the Board of

Governors. Interested persons may

express their views in writing on the

question whether the proposal complies

with the standards of section 4 of the

BHC Act.

Unless otherwise noted, comments

regarding the applications must be

received at the Reserve Bank indicated

or the offices of the Board of Governors

not later than April 18, 1997.

A. Federal Reserve Bank of Kansas

City (John E. Yorke, Senior Vice

President) 925 Grand Avenue, Kansas

City, Missouri 64198-0001:

1. Lindoe, Inc., Ordway, Colorado; to

acquire Delta Federal Savings, F.S.B.,

Delta, Colorado, and thereby engage in

operating a savings association,

pursuant to § 225.25(b)(9) of the Board’s

Regulation Y.

Board of Governors of the Federal Reserve

System, March 19, 1997.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 97–7437 Filed 3-24-97; 8:45 am]

BILLING CODE 6210-01-F

[Docket No. R–0967]

Federal Reserve Bank Service Pricing

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Notice.

SUMMARY: The Board has adopted

guidelines for the Reserve Banks’ use of

volume-based fee structures for their

electronic payment services and

products. The Board has also approved

the continuation of volume-based fees
Federal Register / Vol. 62, No. 57 / Tuesday, March 25, 1997 / Notices 14147

1 In 1993, the Board also approved the use of

volume-based fees for the Minneapolis office’s

weekday other Fed, weekend other Fed, and city

fine sort deposit products. In November 1994, the

staff recommended that the Minneapolis office’s

volume-based fees for paper check products be

eliminated. Results of econometric studies of the

check service’s cost structure indicate that the use

of volume-based fees is not appropriate for paperbased check products. The Minneapolis office

subsequently discontinued the use of volume-based

fees for these products.

2The account total products provide information

on the number and the dollar value of checks drawn

on the accounts of individual customers of a

depository institution and are typically used to

support the institution’s cash management services.

The account total plus product provides additional

information on each check drawn on those

accounts.

3The Federal Reserve also charges electronic

connection fees to depository institutions that

establish an electronic connection with the Federal

Reserve to send and receive electronic payment

transactions and information about those

transactions. The electronic products available

include ACH, Fedwire funds transfer, electronic

check presentment, accounting information, and so

forth.

4The Reserve Banks only charge a per-item fee for

their Fedwire funds transfer service, although

depository institutions that use the service also

incur electronic connection fees.

for certain electronic check products,

pending completion of an analysis

showing that those fees meet the

guidelines. Finally, the Board has

approved specific volume-based fees for

the origination of automated clearing

house (ACH) transactions and a

reduction in the fee for the receipt of

transactions.

DATES: The volume-based pricing

guidelines for electronic payment

services and products became effective

March 24, 1997. The ACH volume-based

fees become effective May 1, 1997.

FOR FURTHER INFORMATION CONTACT:

Florence M. Young, Assistant Director

(202/452–3955), Jack K. Walton II,

Manager, Check Payments (202/452–

2660), or Wesley M. Horn, Manager,

ACH Payments (202/452–2756),

Division of Reserve Bank Operations

and Payment Systems; for the hearing

impaired only: Telecommunications

Device for the Deaf, Dorothea Thompson

(202/452–3544).

SUPPLEMENTARY INFORMATION:

I. Background

In 1993, the Board approved volumebased fees for the Reserve Banks’

noncash collection service and several

check products. Under certain

conditions, volume-based fee structures

promote the efficient use of payment

services by allowing Reserve Banks to

set variable fees closer to the

incremental costs of providing the

services. One of the objectives of

adopting volume-based fees was to

encourage more efficient use of payment

services by permitting the Reserve

Banks to address the differences in

demand for the services by high-volume

and low-volume customers through the

fees charged for those services.

Reserve Banks serve customers that

vary in size and that have very different

business needs. For the most part, the

Reserve Banks have tried to meet those

differing needs by designing specialized

products. In some cases, however, it is

difficult to meet the needs of both highvolume and low-volume customers

solely through specialized product

offerings. This situation occurs most

frequently in the Reserve Banks’

electronic payments services and

products because they tend to be

homogeneous. Thus, it is very difficult

to develop specialized products to meet

the needs of both high-volume and lowvolume customers.

Currently, volume-based fees are in

effect for several electronic check

products. The Federal Reserve Bank of

Minneapolis uses volume-based fees for

its check truncation product. In this

case, truncation customers may select

from two sets of fees—a per-item fee of

$0.015 with an $11.00 daily minimum

or a per-item fee of $0.007 with a $25.00

daily minimum.1 The Federal Reserve

Bank of Richmond uses volume-based

fees for its account total and account

total plus products.2 Account total

customers may select from two sets of

fees—a per-account fee of $0.25 with a

$45.00 daily minimum or a per-account

fee of $2.00 with a $15.00 daily

minimum. Account total plus customers

may also select from two sets of fees—

a per-account fee of $0.25 with a $50.00

daily minimum or a per-account fee of

$2.00 with a $20.00 daily minimum.

In approving these fees, the Board

requested its staff to recommend

principles or guidelines that would be

used in the future to determine when

and how volume-based pricing might be

used in setting fees for Federal Reserve

priced services (58 FR 60649, November

17, 1993).

The following discussion presents the

Board’s analysis of the issues raised by

the use of volume-based fees for

electronic payment services and

products, presents specific guidelines

for the use of such fees, assesses the

existing volume-based fees for

electronic products, and analyzes the

use of specific volume-based fees for the

ACH service.

II. Reserve Banks’ Current Fee

Structures

The Monetary Control Act requires

the Federal Reserve to set fees that, over

the long run, recover all direct and

indirect costs incurred in providing

priced services to depository

institutions plus imputed costs that

would be incurred by a private-sector

service provider, such as interest on

debt, taxes, and return on capital. These

imputed costs are called the private

sector adjustment factor (PSAF).

In establishing fee structures to

recover the total costs of each payment

service, in most cases, the Reserve

Banks have implemented a combination

of fixed and variable fees. For example,

the fee structure for the ACH service

includes a monthly account servicing

fee, a file fee, and per-item fees. The

account servicing fee is intended to

recover from all ACH customers a

portion of the high fixed costs incurred

in providing the ACH service; the file

fee is intended to recover costs, such as

processing overhead and accounting

costs, that do not vary with the number

of transactions contained in files

transmitted to the Federal Reserve; and

the per-item fee is set to recover all

remaining costs.3

The types of fee structures that have

been implemented by the Reserve Banks

are similar to the fee structures used by

other payment service providers, which

also use multi-part fee structures.4

Private-sector ACH and funds transfer

service providers charge monthly access

fees, participation or membership fees,

and per-item fees, which, in some cases,

include discounts for high-volume

customers.

The use of multi-part fee structures

result in differential costs for users of

payment services. For example, the

current ACH fee structure includes a

monthly account servicing fee of $25.00,

a file fee of $1.75, and a per-item fee for

unsorted transactions of $0.01. For a

customer that transmits one file

containing 1,000 transactions each day

of a typical month, the average cost per

transaction would be $0.013. For a

customer that transmits one file

containing 5,000 transactions each day

of a typical month, the average cost per

transaction would be $0.011. Thus,

multi-part fee structures result in lowvolume customers incurring higher

average costs than high-volume

customers because the fixed fees are

spread over fewer transactions.

The use of multi-part fee structures

have also contributed to the Reserve

Banks’ ability to recover the costs of

priced services because, in some cases,

the fixed fees reflect the fixed costs

associated with a product. Nevertheless,

the current fee structures for electronic

payment services and products have not

permitted the Reserve Banks to set

transaction fees close to marginal or

incremental costs because the fixed
14148 Federal Register / Vol. 62, No. 57 / Tuesday, March 25, 1997 / Notices

5For example, the combined per-item fees that

are currently charged to originators and receivers

for the ACH service are $0.020 per item for unsorted

files. These per-item fees are greater than estimates

of the marginal costs of processing an ACH

transaction. Based on econometric studies for the

period 1989 to 1994, the marginal cost of an ACH

transaction is estimated to be between $0.006 to

$0.008 per item. See ‘‘Scale Economies and

Technological Change in Federal Reserve ACH

Payment Processing,’’ Paul W. Bauer and Diana

Hancock, Economic Review, Federal Reserve Bank

of Cleveland, vol. 31 (Quarter 3, 1995), p. 14–29.

6 Volume-based fees may also be justified by the

existence of network externalities. Network

externalities arise when a good becomes more

valuable to a user when other users also choose to

consume that good. For example, telephone service

becomes more valuable to a user as the number of

other users who are connected to the

telecommunications network increases. At present,

we do not have strong intuitive evidence nor do we

have well-developed methods to establish the

importance of network externalities for use in

establishing pricing policies.

7See ‘‘Predatory Pricing and Related Practices

Under Section 2 of the Sherman Act,’’ P. Areeda

and D. F. Turner, Harvard Law Review, 1975, p.

637–733.

8 In a contestable market, potential competitors

may freely enter the market and serve the same

customers with the same production technology as

the incumbent firm(s). Thus, in contestable markets

where incumbent firms are earning profits that are

greater than the risk they are taking, competitors

may enter the market, earn normal profits, and

make the incumbents’ fee structure unsustainable.

costs incurred in providing these

services are very high and setting a nondifferential fixed fee to recover fixed

costs fully would likely cause lowvolume customers to discontinue using

the services or products. As a result,

transaction fees for electronic payment

services are set well above marginal

costs and do not reflect the real resource

costs of providing additional levels of

the services.5

III. Guidelines for Use of Volume-Based

Fees for Electronic Payment Services

and Products

Volume-based fee structures are an

extension of multi-part fee structures.

Rather than creating implicit volume

discounts for high-volume customers,

the volume discounts are more explicit.

Volume-based fee structures would

allow Reserve Banks to set per-item fees

for high-volume users closer to marginal

costs under certain prevailing market

conditions. Thus, the use of volumebased fee structures for the Reserve

Banks’ electronic payment services and

products potentially may provide an

opportunity to improve payment system

efficiency.

Economic theory supports the use of

volume-based fees when certain

conditions are met. First, economic

theory suggests that volume-based fees

require the existence of economies of

scale over wide volume ranges.6 In

multi-product industries, volume-based

fees also may be justified for products

that exhibit economies of scope with a

product that exhibits economies of scale

over wide volume ranges. The Board’s

pricing principles, however, require the

Reserve Banks to set fees so that the

total costs for each major service

category are recovered. Thus, the

potential existence of economies of

scope among payment services offered

by the Reserve Banks is not considered,

at this time, a sufficient guideline for

using volume-based fees.

The Board has determined that

Reserve Banks must demonstrate that a

payment service or product exhibits

economies of scale over current industry

processing levels. It is anticipated that

volume-based fees would be retained

until there is evidence that increasing

returns to scale have been exhausted.

The Reserve Banks may demonstrate

that this guideline is met either by using

the results of an econometric study or,

if such a study has not been conducted,

by presenting evidence that the service

or product exhibits technical

characteristics similar to those exhibited

by a service or product for which

increasing returns to scale have been

demonstrated.

Second, volume-based fees should

promote the efficient use of resources in

providing payment services. The Board

has determined that the efficient use of

resources can be demonstrated in one of

two ways: (1) There are incremental cost

differences in serving high-volume and

low-volume customers or (2) there are

differences in demand for the service or

product among its end users. To the

extent that volume-based pricing

permits fees to reflect more accurately

the costs of providing a service or

product to high-volume and low-volume

customers, those customers should

make decisions that would lead to a

more efficient use of economic

resources. Alternatively, the use of

volume-based fees may increase end

users’ demand by offering lower fees to

customers with high demand

elasticities. To the extent that

differences in demand elasticities exist,

the use of volume-based fees would

improve the scale of the Reserve Banks’

processing operations and result in a

reduction in the average cost of serving

all customers. The Board has

determined that Reserve Banks should

provide evidence that there are cost

differences between serving highvolume and low-volume customers that

support the price differential being

proposed or that demand characteristics

differ across end users.

Third, economic theory indicates that

societal welfare can potentially be

increased only so long as a firm using

differential fees does not engage in

predatory behavior. A number of pricing

constraints have been proposed in

antitrust law that are intended to

prevent predation. One of the best

known, the Areeda-Turner rule,

specifies that the incumbent’s price

must be no lower than its reasonably

anticipated short-run marginal cost.7 To

the extent that econometric studies have

been conducted, their findings could be

used to satisfy this guideline. It is

unlikely, however, that there will be

econometric estimates of the marginal

costs for all products. Thus, estimates of

marginal costs for some products may

have to be based on available cost

accounting data. The Board has

determined that no fee should be set

below marginal cost or a reasonable

approximation of marginal cost.

Moreover, the Board believes that this

guideline along with its current

requirement that each major service

recover its total costs, including the

PSAF, over the long run, would ensure

that proposed prices are not predatory,

but competitive, in nature.

In determining when the Reserve

Banks should be permitted to

implement volume-based fees, the

Board has determined that thresholds

should be set to ensure that the Federal

Reserve’s dual objectives of promoting

efficiency and a competitive

environment for payment services are

met. To the extent that markets are

contestable, economic theory suggests

that established firms cannot set prices

that yield profits greater than profits

that are commensurate with the risk of

producing the service.8 Because the

markets for electronic payment services

and products are typically contestable,

Reserve Banks would not be able to

adopt fee schedules that would lead to

unusually high profits. Based on the

preceding analysis, the Board has

determined that the following

guidelines will be used in determining

when volume-based fees may be

appropriate for a Federal Reserve priced

electronic payment service or product:

1. The payment service or product must

demonstrate economies of scale over the

current industry processing levels for a

particular service or product, based on either

the results of an econometric study or, if such

a study has not been conducted, evidence

that the service or product exhibits technical

characteristics similar to those exhibited by

a service or product for which increasing

returns to scale have been demonstrated.

Volume-based fees may be retained until

there is evidence that increasing returns to

scale have been exhausted;
Federal Register / Vol. 62, No. 57 / Tuesday, March 25, 1997 / Notices 14149

9There may be a small number of third-party

sending points whose fees would increase as a

result of this proposal because sending points are

assessed the file fees while the originating

depository institution is assessed the per-item fees.

The Reserve Banks believe that the number of

organizations affected would be small. Further,

those organizations may be able to use the lower

per-item fees as an incentive to attract more

customers.

2. Reserve Banks should provide evidence

that there are cost differences between

serving high-volume and low-volume

customers that support the proposed price

differential or that demand characteristics

differ across end users;

3. No fee should be set below marginal cost

or a reasonable approximation of marginal

cost; and

4. Consistent with the Board’s pricing

principles, the fees established for the service

should be expected to recover total costs.

IV. Evaluation of Current VolumeBased Fees for Electronic Payment

Products

In assessing the use of volume-based

fees for the Minneapolis Reserve Bank’s

check truncation product, it appears

that three of the four guidelines are met.

The Federal Reserve has not performed

an econometric study of the cost

structure of the Reserve Banks’

electronic check products nor have the

Reserve Banks provided evidence that

the cost structure for these products

exhibits characteristics similar to those

of a product with demonstrated

increasing returns to scale. The

Minneapolis Bank, however, has

achieved significant unit cost reductions

in providing its electronic check

products, which include the truncation

product. From January 1994 to

November 1996, the volume of

electronic check products processed by

the Bank increased 161 percent and its

unit cost for the products declined

about 42 percent.

There do appear to be differences in

the demand characteristics of

customers. Following the introduction

of volume-based fees, larger community

banks and third-party service providers

began using the Minneapolis Bank’s

truncation product. Previously, only

small banks and credit unions used the

product. From January 1994 to

November 1996, the number of checks

truncated by the Minneapolis Bank

increased 253 percent. While this

increase is only slightly greater than the

increase in the System’s overall

truncation volume, the Minneapolis

Bank’s check truncation volume is the

highest in the Federal Reserve System.

The marginal cost of electronic check

products has not been estimated. Cost

data provided by the Minneapolis

Bank’s staff indicate, however, that the

fees charged to high-volume customers

recover the average variable cost for the

products, which would likely be greater

than the marginal cost. In addition, the

Bank recovered the total costs of its

commercial check service over the three

years it has offered this product.

The Richmond Reserve Bank adopted

volume-based fees for its account total

and account total plus products, which

were intended to meet the needs of lowvolume customers that offer cash

management services. Since offering

volume-based fees for these products in

1994, low-volume customers have

shown limited interest in the products

and only three are using them currently.

As noted above, studies of the cost

structure of electronic check products

have not been completed and the

marginal costs have not been estimated.

The Board has determined that, as a

condition of retaining their volumebased fees, the Reserve Banks should

demonstrate that economies of scale

exist for electronic check products or

provide evidence that the products

exhibit characteristics similar to those

exhibited by products with increasing

returns to scale. The Federal Reserve

Banks of Minneapolis and Richmond

should also demonstrate that their fees

cover the marginal costs of the products

they are offering. In addition, the

Federal Reserve Bank of Richmond

should analyze the costs of providing its

account total products to high-volume

and low-volume customers to determine

whether there are cost differences in

serving various size classes of customers

or should analyze the demand for the

products to determine whether their are

differences in demand elasticities.

V. ACH Volume-Based Fees

The Board has approved the volumebased fees depicted in Table 1 for the

ACH service, effective May 1, 1997.

Customers that deposit files of less than

2,500 items will be assessed a file fee of

$1.75 and a per-item fee of $0.009.

Customers that deposit files of more

than 2,500 items will be assessed a file

fee of $6.75 and a per-item fee of $0.007.

The fee for the receipt of ACH

transactions will be reduced to $0.009

for all customers. Because current

presort customers will need to make

software changes to take advantage of

volume-based fees, through August 31,

1997, they will be charged the highvolume origination per-item fee and one

file fee ($6.75) when they transmit

presorted files to the Federal Reserve.

Beginning September 1, all depositors

will be assessed fees based on the

number of items in each file.

Fees for the ACH service have been

reduced twice in the last six months,

reflecting the efficiencies that are being

realized as a result of the centralization

of ACH processing using the new Fed

ACH application software. In October

1996, the interregional per-item fee was

eliminated and all items in mixed files

were assessed the local per-item fee. At

the same time, the presort per-item fee

was reduced from $0.010 to $0.009. In

January 1997, there were additional

price reductions. Specifically, the

premium cycle surcharge and addenda

fee were reduced and the discrete file

fee was eliminated. At the time the 1997

fees were approved, the Board indicated

that further fee reductions would be

sought during the first quarter of 1997

(61 FR 64087, December 3, 1996).

TABLE 1.—ACH FEE COMPARISON

Current fees New fees

Origination Fees:

Per-Item (Mixed) ................................................................................... $0.010 $0.009 (up to 2500).

$0.007 (more than 2500).

Per-Item (Presort) ................................................................................. 0.009 0.007 through August 31, 1997. Discontinued as of

September 1, 1997.

File Fees ...................................................................................................... 1.75 1.75 (up to 2500).

6.75 (more than 2500).

Receiver Fees: Per-Item .............................................................................. 0.010 0.009.

On average, the new fees reduce the

cost of originating ACH transactions by

17 percent and of receiving transactions

by 10 percent.9 The reduction in
14150 Federal Register / Vol. 62, No. 57 / Tuesday, March 25, 1997 / Notices

10Bauer and Hancock, Economic Review, p. 14–

29.

transaction fees for various Federal

Reserve customers is shown in Table 2.

TABLE 2.—REPRESENTATIVE COST

SAVINGS

Selected customers 1 Percentage

decrease 2

Small ......................................... 4.9

Medium ..................................... 10.0

Large:

Does not presort ................... 29.1

Presorts ................................. 24.3

1The small customer originated approximately 100 items in one file and received approximately 70 items. The medium customer

originated approximately 4,000 items in two

files and received approximately 17,000 items.

The large customer that does not presort originated approximately 200,000 items in four files

and received approximately 39,000 items. The

large customer that presorts originated approximately 190,000 items in 108 presorted

files and received approximately 44,000 items. 2 Includes originated and received per-item

fees and originated file fees.

The Federal Reserve believes that the

volume-based fees may stimulate

increased use of the ACH service

because the fees for high-volume

originators are set close to the marginal

cost of processing ACH transactions. To

the extent that this expectation is

correct, the use of volume-based fees for

the ACH service should further the

Federal Reserve’s goal of moving to a

predominately electronic payments

system.

Retaining high-volume originators

would enable the Federal Reserve to

continue to spread fixed costs over

larger volumes and to serve low-volume

customers cost effectively. In addition,

because the new ACH fees reduce the

cost of the ACH service for low-volume

originators and all receivers, they do not

price small customers out of the market

and, therefore, preserve the benefits of

a large network.

The Board has determined that

volume-based fees for the ACH service

satisfy all of the guidelines for their use.

First, the ACH cost function exhibits

economies of scale over more than 150

percent of the current industry’s volume

level, as shown in Bauer and Hancock’s

econometric study.10 While the study

was conducted when the Federal

Reserve processed ACH transactions at

twelve sites, the use of a centralized

application has not created any material

changes in the characteristics of the

service. ACH processing continues to

use large amounts of computer

resources with relatively few labor

resources.

Second, the Reserve Banks analyzed

Fed ACH processing costs and found

that the average per-item cost to process

larger files was about $0.002 less than

the per-item cost for smaller files. The

analysis focused on the data processing

costs to edit and sort transactions

contained in incoming ACH files, which

comprise approximately 19 percent of

total ACH processing costs. Because

there are other fixed costs associated

with processing ACH files, it is likely

that cost differences for processing highvolume and low-volume files of ACH

transactions are greater than the

difference that was demonstrated.

There also appear to be differences

among end users’’ demands for ACH

services. For example, individuals may

be willing to pay slightly higher fees for

increased convenience, as in the case of

electronic bill-payment services.

Corporations may choose a payment

method based on its cost-effectiveness

and certainty of settlement. In addition,

according to the 1994–1995 PhoenixHecht Blue Book of Bank Prices, banks

frequently grant discounts to some

corporate customers for ACH processing

services. It is reasonable to assume that

the discounts are granted, at least in

part, due to differences in demand

among end users and/or due to

differences in the cost of serving end

users.

Third, the results of the BauerHancock econometric study confirm

that the fees are above the estimated

marginal cost, that is, the combined

origination and receipt fees of $0.016 or

$0.018 are well above the estimated

marginal cost of $0.006 to $0.008.

Finally, the Board anticipates that the

ACH service will be able to recover its

costs over the long term. In addition, the

Board expects full cost recovery for

1997 (see Table 3). The current 1997

cost and revenue estimates for the ACH

service reflect some slight refinements,

compared with earlier budget estimates.

Revenue in the revised estimate is

below the final 1997 budget figure

because the $0.002 per-item fee

differential is greater than the price

reductions assumed when the Reserve

Banks prepared their budgets. In

addition, the estimated volume growth

rate for commercial ACH transactions

has been reduced slightly, from 18.5

percent to 16.0 percent, to reflect more

accurately expectations based on actual

1996 performance. Operating costs and

imputed expenses are below the 1997

budget estimates, reflecting lower data

processing costs due to enhancing the

performance of the Fed ACH software.

Based on these refinements, the Board

now expects that the ACH service’s net

income will be slightly higher than the

original budget estimate.

TABLE 3.—ACH PRO FORMA COST AND REVENUE PERFORMANCE

[$ millions]

Year Revenue

Operating

costs and

imputed expenses

Special

project

costs recovered

Total Expense

[2+3]

Net income

(ROE)

[1–4]

Target ROE

Recovery

rate after

target ROE

(percent)

[1/(4+6)]

Special

project

costs deferred and

financed

1 2 3 4 5 6 7 8

1996 (Act) .......................... 79.8 63.5 9.2 72.7 7.1 3.6 104.6 16.7

1997 (Bud) ......................... 75.4 59.9 11.1 71.0 4.3 4.0 100.5 10.8

1997 (Est) .......................... 73.5 57.7 11.1 68.8 4.7 4.0 101.0 10.8

VI. Competitive Impact Analysis

In assessing the competitive impact of

a proposed, substantial change to a

Federal Reserve priced service, the

Board must consider whether there

would be a direct and material adverse

effect on the ability of other service

providers to compete with the Federal

Reserve due to differing legal powers or

due to the Federal Reserve’s dominant

market position deriving from such legal

differences. If the Board determines that
Federal Register / Vol. 62, No. 57 / Tuesday, March 25, 1997 / Notices 14151

legal differences or a dominant market

position deriving from such legal

differences exist, then the Board must

further evaluate the proposal to assess

its benefits—such as its contributions to

payment system efficiency, payment

system integrity, or other Board

objectives—and to determine whether

the proposal’s objectives could be

achieved with a lesser or no adverse

impact.

The Board has determined that

volume-based fees are not a significant

departure from the multi-part fee

structures currently used by the Reserve

Banks. Nevertheless, it is important to

assess their use in the context of the

service for which the fee structure is

being proposed.

The Board has determined that

adoption of a volume-based fee

structure for electronic services would

not have a direct and material adverse

effect on the ability of other service

providers to compete effectively with

the Federal Reserve in providing

electronic check products and ACH

services.

In the check service, the Reserve

Bank’s dominant market position is

likely due, in part, to legal advantages,

such as the ability to present checks

later in the day and the ability to control

the timing and manner of settlement.

The use of volume-based fees for

Reserve Bank electronic check products,

however, should not significantly

change the Reserve Banks’ competitive

position relative to private-sector

service providers. Volume-based fees

are used by a number of private-sector

service providers and would not

represent a significant departure from

the multi-part fees that are currently

assessed by the Reserve Banks.

In the case of the ACH service, the

Federal Reserve’s dominant market

position does not derive from legal

differences. The Federal Reserve

generally abides by the rules of the

National Automated Clearing House

Association (NACHA), which also

govern the processing of ACH payments

by private-sector operators.

By order of the Board of Governors of the

Federal Reserve System, March 19, 1997.

William W. Wiles,

Secretary of the Board.

[FR Doc. 97–7396 Filed 3–24–97; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Centers for Disease Control and

Prevention

[INFO–97–07]

Proposed Data Collections Submitted

for Public Comment and

Recommendations

In compliance with the requirement

of Section 3506(c)(2)(A) of the

Paperwork Reduction Act of 1995 for

opportunity for public comment on

proposed data collection projects, the

Centers for Disease Control and

Prevention (CDC) will publish periodic

summaries of proposed projects. To

request more information on the

proposed projects or to obtain a copy of

the data collection plans and

instruments, call the CDC Reports

Clearance Officer on (404) 639–7090.

Comments are invited on: (a) Whether

the proposed collection of information

is necessary for the proper performance

of the functions of the agency, including

whether the information shall have

practical utility; (b) the accuracy of the

agency’s estimate of the burden of the

proposed collection of information; (c)

ways to enhance the quality, utility, and

clarity of the information to be

collected; and (d) ways to minimize the

burden of the collection of information

on respondents, including through the

use of automated collection techniques

for other forms of information

technology. Send comments to Wilma

Johnson, CDC Reports Clearance Officer,

1600 Clifton Road, MS-D24, Atlanta, GA

30333. Written comments should be

received within 60 days of this notice.

Proposed Projects

1. Sun Protection for Children—

New—Skin cancer is of increasing

public health concern because of its

increasing incidence. Ultraviolet

radiation is the primary risk factor for

skin cancers, and the risk of skin cancer

appears to be increased with early life

exposures to ultraviolet radiation.

However, little information is available

on sun protection for children.

Therefore, the Centers for Disease

Control and Prevention, National Center

for Chronic Disease Prevention and

Control, Division of Cancer Prevention

and Control, intends to conduct a

survey on sun protection for children to

monitor sun protection behaviors,

develop health messages, and target

populations for health education as part

of the National Skin Cancer Prevention

Education Program.

A representative sample of parents of

children aged 6 months to 10 years,

selected by random digit dialing, will be

interviewed over the telephone. The

information collected will include

demographic information, parental

knowledge and attitudes about skin

cancer and sun protection, and sun

protection for their children. There is no

cost to respondents.

Respondents Number of respondents

Number of responses/respondentAvg. burden/

response

(in hrs.)

Total burden

(in hrs.)

Parents ............................................................................................................. 900 1 0.5 450

2. Evaluation of the Skills-Building

Workshop and Peer Outreach

Components of the CDC’s Prevention

Marketing Initiative Local

Demonstration Site Project—New—The

Centers for Disease Control and

Prevention, National Center for HIV,

STD, and TB Prevention, Division of

HIV/AIDS Prevention, Behavioral

Intervention Research Branch is

planning to conduct a series of studies

as part of the evaluation of a five-city

HIV prevention demonstration program.

The program involves the integration of

social marketing strategies and

community participation in an effort to

develop and implement HIV prevention

activities. Charged with developing

programs for those 25 years of age and

younger, community groups in the local

demonstration sites chose to segment

the target audience even further, and to

mount a variety of types of

interventions. Decisions about

segmentation and the nature of local

interventions were based on formative

research conducted in each community.

It is hoped that this demonstration

project will result in reductions in HIV

risk behavior among members of the

target audiences, as well as in enhanced

collaboration among individuals and

organizations in the participating

communities.

To evaluate the effectiveness of two

components of the intervention,

questionnaire data will be collected

from people under 25 years old and

from some parents in the demonstration

communities. These data will be

collected immediately before and after

the Skills-Building Workshops, one