[Federal Register Volume 82, Number 219 (Wednesday, November 15, 2017)]
[Notices]
[Pages 52906-52926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24736]


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FEDERAL RESERVE SYSTEM

[Docket No. OP-1583]


Federal Reserve Bank Services

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
has approved the private sector adjustment factor (PSAF) for 2018 of 
$18.9 million and the 2018 fee schedules for Federal Reserve priced 
services and electronic access. These actions were taken in accordance 
with the Monetary Control Act of 1980, which requires that, over the 
long run, fees for Federal Reserve priced services be established on 
the basis of all direct and indirect costs, including the PSAF.

DATES: The new fee schedules become effective January 2, 2018.

FOR FURTHER INFORMATION CONTACT: For questions regarding the fee 
schedules: David C. Mills, Deputy Associate Director, (202) 530-6265; 
Emily Massaro, Financial Services Analyst, (202) 452-2493, Division of 
Reserve Bank Operations and Payment Systems. For questions regarding 
the PSAF: Lawrence Mize, Deputy Associate Director, (202) 452-5232; Max 
Sinthorntham, Senior Financial Analyst, (202) 452-2864, Division of 
Reserve Bank Operations and Payment Systems. For users of 
Telecommunications Device for the Deaf (TDD) only, please call (202) 
263-4869. Copies of the 2018 fee schedules for the check service are 
available from the Board, the Federal Reserve Banks, or the Reserve 
Banks' financial services Web site at www.frbservices.org.

I. Supplementary Information

Private Sector Adjustment Factor, Priced Services Cost Recovery, and 
Overview of 2017 Price Changes

    A. Overview--Each year, as required by the Monetary Control Act of 
1980, the Reserve Banks set fees for priced services provided to 
depository institutions. These fees are set to recover, over the long 
run, all direct and indirect costs and imputed costs, including 
financing costs, taxes, and certain other expenses, as well as the 
return on equity (profit) that will have been earned if a private 
business firm provided the services. The imputed costs and imputed 
profit are collectively referred to as the private-sector adjustment 
factor (PSAF). From 2007 through 2016, the Reserve Banks recovered 
101.8 percent of their total expenses (including imputed costs) and 
targeted after-tax profits or return on equity (ROE) for providing 
priced services.\1\
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    \1\ The 10-year recovery rate is based on the pro forma income 
statements for Federal Reserve priced services published in the 
Board's Annual Report. Effective December 31, 2006, the Reserve 
Banks implemented Statement of Financial Accounting Standards (SFAS) 
No. 158: Employers' Accounting for Defined Benefit Pension and Other 
Postretirement Plans [Accounting Standards Codification (ASC) 715 
Compensation--Retirement Benefits], which resulted in recognizing a 
cumulative reduction in equity related to the priced services' 
benefit plans. Including this cumulative reduction in equity from 
2007 to 2016 results in cost recovery of 95.6 percent for the ten-
year period. This measure of long-run cost recovery is also 
published in the Board's Annual Report.
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    Table 1 summarizes 2016 actual, 2017 estimated, and 2018 budgeted 
cost-recovery rates for all priced services. Cost recovery is estimated 
to be 102.6 percent in 2017 and budgeted to be 100.0 percent in 2018.

                                      Table 1--Aggregate Priced Services Pro Forma Cost and Revenue Performance \a\
                                                                  [Dollars in millions]
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                                                                                                                                         Recovery rate
                           Year                                 Revenue         Total expense    Net income  (ROE)     Targeted ROE      after targeted
                                                                                                                                            ROE  (%)
                                                                       1 \b\              2 \c\                  3              4 \d\              5 \e\
                                                                                                             [1-2]                           [1/(2 + 4)]
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2016 (actual)............................................              434.1              410.5               23.7                4.1              104.7
2017 (estimate)..........................................              442.3              426.3               16.0                4.6              102.6

[[Page 52907]]

 
2018 (budget)............................................              441.7              436.5                5.2                5.2              100.0
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\a\ Calculations in this table and subsequent pro forma cost and revenue tables may be affected by rounding.
\b\ Revenue includes imputed income on investments when equity is imputed at a level that meets minimum capital requirements and, when combined with
  liabilities, exceeds total assets.
\c\ The calculation of total expense includes operating, imputed, and other expenses. Imputed and other expenses include taxes, Board of Governors'
  priced services expenses, the cost of float, and interest on imputed debt, if any. Credits or debits related to the accounting for pension plans under
  FAS 158 [ASC 715] are also included.
\d\ Targeted ROE is the after-tax ROE included in the PSAF.
\e\ The recovery rates in this and subsequent tables do not reflect the unamortized gains or losses that must be recognized in accordance with FAS 158
  [ASC 715]. Future gains or losses, and their effect on cost recovery, cannot be projected.

    Table 2 provides an overview of cost-recovery budgets, estimates, 
and performance for the 10-year period from 2007 to 2016, 2016 actual, 
2017 budget, 2017 estimate, and 2018 budget by priced service.

                                     Table 2--Priced Services Cost Recovery
                                                    [Percent]
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                                                                    2017 budget                     2018 budget
         Priced service              2007-2016      2016 actual         \a\        2017 estimate        \b\
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All services....................           101.8           104.7           100.0           102.6           100.0
Check...........................           102.7           112.7           104.1           104.8           101.2
FedACH..........................            99.1            98.8            95.7            97.8            96.2
Fedwire Funds and NSS...........           101.3           103.3           101.1           105.9           104.0
Fedwire Securities..............           102.2            99.2            97.8           103.1            97.2
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\a\ The 2017 budget figures reflect the final budgets as approved by the Board in December 2016.
\b\ The 2018 budget figures reflect preliminary budget information from the Reserve Banks. The Reserve Banks
  will submit final budget data to the Board in November 2017, for Board consideration in December 2017.

    1. 2017 Estimated Performance--The Reserve Banks estimate that they 
will recover 102.6 percent of the costs of providing priced services in 
2017, including total expense and targeted ROE, compared with a 2017 
budgeted recovery rate of 100.0 percent, as shown in table 2. Overall, 
the Reserve Banks estimate that they will fully recover actual and 
imputed costs and earn net income of $16.0 million, compared with the 
targeted ROE of $4.6 million. The Reserve Banks estimate that the check 
service, the Fedwire[supreg] Funds and National Settlement Services, 
and the Fedwire Securities Service will achieve full cost recovery; 
however, the Reserve Banks continue to estimate that the FedACH[supreg] 
Service will not achieve full cost recovery because of investment costs 
associated with the multiyear technology initiative to modernize its 
processing platform.\2\ This investment is expected to enhance 
efficiency, the overall quality of operations, and the Reserve Banks' 
ability to offer additional services to depository institutions.
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    \2\ The Reserve Banks have been engaged in a multiyear 
technology initiative to modernize the FedACH processing platform by 
migrating the service from a mainframe system to a distributed 
computing environment.
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    2. 2018 Private-Sector Adjustment Factor--The 2018 PSAF for Reserve 
Bank priced services is $18.9 million. This amount represents an 
increase of $2.3 million from the 2017 PSAF of $16.6 million. This 
increase is primarily the result of an increase in the total cost of 
capital and sales taxes offset by a decrease in Board of Governors 
expenses.
    3. 2018 Projected Performance--The Reserve Banks project a priced 
services cost recovery rate of 100.0 percent in 2018, with both net 
income and targeted ROE of $5.2 million. The Reserve Banks project that 
the price changes will result in a 1.4 percent average price increase 
for customers. The Reserve Banks project that the check service and the 
Fedwire Funds and National Settlement Services will fully recover their 
costs; however, the Reserve Banks project that the FedACH Service and 
the Fedwire Securities Service will not achieve full cost recovery. 
Although FedACH is not budgeted to fully recover its costs in 2018, the 
Reserve Banks are expected to fully recover FedACH costs once the 
FedACH technology modernization project is complete, as well as over 
the long run. In addition, the Board believes the Reserve Banks' 2018 
FedACH fee increases are consistent with a multiyear strategy of 
providing long-term price stability for customers during a period of 
high expenses in the short-term as the technology is upgraded. Although 
Fedwire Securities Service is not budgeted to fully cover its costs in 
2018, the Board believes the Reserve Banks will recover Fedwire 
Securities Service costs in the long run. In 2018 Fedwire Securities 
Service is projected to underrecover, due to volume declines driven by 
market changes.\3\
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    \3\ Fedwire Securities Service's ten-year average recovery rate 
in 2018 is 101.6 percent.
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    The primary risks to the Reserve Banks' ability to achieve their 
targeted cost recovery rates are unanticipated volume and revenue 
reductions and the potential for cost overruns from new and ongoing 
improvement initiatives. In light of these risks, the Reserve Banks 
will continue to refine their business and operational strategies to 
manage operating costs, increase product

[[Page 52908]]

revenue, and to capitalize on efficiencies gained from technology 
initiatives.
    4. 2018 Pricing--The following summarizes the Reserve Banks' 
changes in fee schedules for priced services in 2018:

Check
    <bullet> The Reserve Banks will reassign the tier placement of 478 
forward and 977 return endpoints in the FedForward[supreg] and 
FedReturn[supreg] products, respectively.\4\
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    \4\ The Reserve Banks evaluate and set tier assignments annually 
based on changes in the volume of items received by endpoints.
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    <bullet> The Reserve Banks will increase all per-item fees for the 
FedReturn product, except substitute check fees, by 3 percent, rounded 
to the nearest penny, based on the 2018 tier assignments.
    <bullet> The Reserve Banks will lower the average daily forward 
receipt volume thresholds for tiers 1, 2, and 3 of the FedForward 
product Premium Daily Fee A, B, and C deposit options based on 2018 
tier assignments.
    <bullet> The Reserve Banks will increase fees for their paper check 
forward and return collection products to encourage depositors to shift 
volume away from legacy paper-related products. The Reserve Banks will 
increase the cash letter fee for paper forward deposits from $10 to 
$15, and increase the per-item fee for paper forward deposits and paper 
return deposits by $1 to $3.50 and $6.50 respectively.
    <bullet> The Reserve Banks will increase all fees for the 
FedImage[supreg] product by 10 percent (rounded to the nearest 
increment based upon the number of decimal places of the current fee).

FedACH

    <bullet> The Reserve Banks will increase the base origination and 
receipt per-item fees from $0.0032 to $0.0035. The Reserve Banks also 
will increase per-item volume-based discounts by $0.0003 for certain 
origination discounts (depending on origination volume) and all receipt 
discounts.
    <bullet> The Reserve Banks will increase the monthly FedACH 
Participation Fee from $58 to $65.

Fedwire Funds

    <bullet> The Reserve Banks will decrease the Tier 3 per-item pre-
incentive fee from $0.17 to $0.16 per transaction.\5\
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    \5\ The per-item pre-incentive fee is the fee that the Reserve 
Banks charge for transfers that do not qualify for incentive 
discounts. The Tier 1 per-item pre-incentive fee applies to the 
first 14,000 transfers, the Tier 2 per-item pre-incentive fee 
applies to the next 76,000 transfers, and the Tier 3 per-item pre-
incentive fee applies to any additional transfers. The Reserve Banks 
apply an 80 percent incentive discount to transfers that are more 
than 60 percent of a customer's historic benchmark volume.
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    <bullet> The Reserve Banks will decrease the Tier 3 per-item 
incentive fee, which is derived from the Tier 3 per-item pre-incentive 
fee, from $0.034 to $0.032.
    <bullet> The Reserve Banks will decrease the payment notification 
origination surcharge from $0.20 to $0.01.

National Settlement Service (NSS)

    <bullet> The Reserve Banks will keep prices at existing levels for 
the priced NSS products.

Fedwire Securities

    <bullet> The Reserve Banks will keep prices at existing levels for 
the priced Fedwire Securities products.

FedLine[supreg] Access Solutions

    <bullet> The Reserve Banks will provide VPN devices directly to 
customers and include the provision of the devices in all FedLine 
Advantage[supreg], FedLine Command[supreg], and both FedLine 
Direct[supreg] packages.\6\ As a result, the $1,500 new customer credit 
will be eliminated and the monthly access fees will increase, ranging 
from $35 to $100, but include the VPN devices.
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    \6\ Historically, customers purchased their VPNs directly from a 
vendor.
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    <bullet> The Reserve Banks will introduce two new 
FedComplete[supreg] packages: FedComplete 100C Plus and FedComplete 
200C Plus. The new FedComplete 100C Plus and 200C Plus packages, which 
use the same threshold volumes as the existing FedComplete packages, 
will include the FedLine Command access solution, rather than FedLine 
Advantage. FedComplete 100C Plus will be priced at $1,375 per month and 
FedComplete 200C Plus will be priced at $1,900 per month.
    <bullet> The Reserve Banks will make six additional FedComplete 
package changes: (1) Add the SameDay ACH origination participation fee 
and surcharge; (2) remove the FedMail[supreg]-FedLine Exchange[supreg] 
Subscriber 5-pack, consistent with the previously announced unbundling 
of the FedMail service; (3) increase the price of the existing volume 
overage monthly surcharges for FedForward, from $0.01 to $0.037, 
FedReturn, from $0.75 to $0.82, FedACH origination, from $0.0025 to 
$0.0035, and Fedwire Funds origination, from $0.70 to $0.82; (4) 
implement FedReceipt[supreg], FedACH receipt, and Fedwire Funds receipt 
monthly surcharges of $0.00005, $0.00035, and $0.082, respectively; (5) 
implement a threshold limit of 46 items for FedForward Cash Letters; 
and (6) adjust FedComplete package prices to maintain an effective 
discount of less than 20 percent compared to the cost of purchasing 
services separately.
    <bullet> The Reserve Banks will increase the legacy software fee 
for FedLine Direct customers that have not converted to new IBM[supreg] 
MQ software. The fee will vary based on the number of customers 
remaining on the legacy system.
    5. 2018 Price Index--Figure 1 compares indexes of fees for the 
Reserve Banks' priced services with the GDP price index.\7\ The price 
index for Reserve Bank priced services is projected to decrease 
approximately 1 percent in 2018 from 2017. The price index for Check 21 
services is projected to decrease less than 1 percent. The price index 
for the FedACH Service is projected to decrease less than 1 percent. 
The price index for the Fedwire Funds and National Settlement Services 
is projected to decrease nearly 4 percent. The price index for the 
Fedwire Securities Services is projected to decrease approximately 2 
percent. For the period 2008 to 2018, the price index for total priced 
services is expected to decrease nearly 7 percent.
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    \7\ For the period 2008 to 2016, the GDP price index increased 
12.3 percent.

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[[Page 52909]]

[GRAPHIC] [TIFF OMITTED] TN15NO17.082

    B. Private Sector Adjustment Factor--The imputed debt financing 
costs, targeted ROE, and effective tax rate are based on a U.S. 
publicly traded firm market model.\8\ The method for calculating the 
financing costs in the PSAF requires determining the appropriate 
imputed levels of debt and equity and then applying the applicable 
financing rates. In this process, a pro forma balance sheet using 
estimated assets and liabilities associated with the Reserve Banks' 
priced services is developed, and the remaining elements that will 
exist are imputed as if these priced services were provided by a 
private business firm. The same generally accepted accounting 
principles that apply to commercial-entity financial statements apply 
to the relevant elements in the priced services pro forma financial 
statements.
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    \8\ Data for U.S. publicly traded firms is from the Standard and 
Poor's Compustat[supreg] database. This database contains 
information on more than 6,000 U.S. publicly traded firms, which 
approximates the entirety of the U.S. market.
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    The portion of Federal Reserve assets that will be used to provide 
priced services during the coming year is determined using information 
about actual assets and projected disposals and acquisitions. The 
priced portion of these assets is determined based on the allocation of 
depreciation and amortization expenses of each asset class. The priced 
portion of actual Federal Reserve liabilities consists of 
postemployment and postretirement benefits, accounts payable, and other 
liabilities. The priced portion of the actual net pension asset or 
liability is also included on the balance sheet.\9\
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    \9\ The pension assets are netted with the pension liabilities 
and reported as a net asset or net liability as required by ASC 715 
Compensation--Retirement Benefits.
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    The equity financing rate is the targeted ROE produced by the 
capital asset pricing model (CAPM). In the CAPM, the required rate of 
return on a firm's equity is equal to the return on a risk-free asset 
plus a market risk premium. The risk-free rate is based on the three-
month Treasury bill; the beta is assumed to be equal to 1.0, which 
approximates the risk of the market as a whole; and the market risk 
premium is based on the monthly returns in excess of the risk-free rate 
over the most recent 40 years. The resulting ROE reflects the return a 
shareholder will expect when investing in a private business firm.
    For simplicity, given that federal corporate income tax rates are 
graduated, state income tax rates vary, and various credits and 
deductions can apply, an actual income tax expense is not explicitly 
calculated for Reserve Bank priced services. Instead, the Board targets 
a pretax ROE that will provide sufficient income to fulfill the priced 
services' imputed income tax obligations. To the extent that 
performance results are greater or less than the targeted ROE, income 
taxes are adjusted using the effective tax rate.
    Capital structure. The capital structure is imputed based on the 
imputed funding need (assets less liabilities), subject to minimum 
equity constraints. Short-term debt is imputed to fund the imputed 
short-term funding need. Long-term debt and equity are imputed to meet 
the priced services long-term funding need at a ratio based on the 
capital structure of the U.S. publicly traded firm market. The level of 
equity must meet the minimum

[[Page 52910]]

equity constraints, which follow the FDIC requirements for a well-
capitalized institution. The priced services must maintain equity of at 
least 5 percent of total assets and 10 percent of risk-weighted 
assets.\10\ Any equity imputed that exceeds the amount needed to fund 
the priced services' assets and meet the minimum equity constraints is 
offset by a reduction in imputed long-term debt. When imputed equity is 
larger than what can be offset by imputed debt, the excess is imputed 
as investments in Treasury securities; income imputed on these 
investments reduces the PSAF.
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    \10\ The FDIC rule, which was adopted as final on April 14, 
2014, requires that well-capitalized institutions meet or exceed the 
following standards: (1) Total capital to risk-weighted assets ratio 
of at least 10 percent, (2) tier 1 capital to risk-weighted assets 
ratio of at least 8 percent, (3) common equity tier 1 capital to 
risk-weighted assets ratio of at least 6.5 percent, and (4) a 
leverage ratio (tier 1 capital to total assets) of at least 5 
percent. Because all of the Federal Reserve priced services' equity 
on the pro forma balance sheet qualifies as tier 1 capital, only 
requirements 1 and 4 are binding. The FDIC rule can be located at 
https://www.fdic.gov/news/board/2014/2014-04-08_notice_dis_c_fr.pdf.
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    Application of the Payment System Risk (PSR) Policy to the Fedwire 
Services. The Board's PSR policy reflects the new international 
standards for financial market infrastructures (FMIs) developed by the 
Committee on Payment and Settlement Systems and the Technical Committee 
of the International Organization of Securities Commissions in the 
Principles for Financial Market Infrastructures.\11\ The revised policy 
retains the expectation that the Fedwire Services meet or exceed the 
applicable risk-management standards. Principle 15 states that an FMI 
will identify, monitor, and manage general business risk and hold 
sufficient liquid net assets funded by equity to cover potential 
general business losses so that it can continue operations and services 
as a going concern if those losses materialize. Further, liquid net 
assets will at all times be sufficient to ensure a recovery or orderly 
wind-down of critical operations and services. The Fedwire Services do 
not face the risk that a business shock will cause the service to wind 
down in a disorderly manner and disrupt the stability of the financial 
system. In order to foster competition with private-sector FMIs, 
however, the Reserve Banks' priced services will hold six months of the 
Fedwire Funds Service's current operating expenses as liquid financial 
assets and equity on the pro forma balance sheet.\12\ Current operating 
expenses are defined as normal business operating expenses on the 
income statement, less depreciation, amortization, taxes, and interest 
on debt. Using the Fedwire Funds Service's preliminary 2018 budget, six 
months of current operating expenses will be $51.4 million. In 2018, 
$1.5 million of equity was imputed to meet the FDIC capital 
requirements. No additional imputed equity was necessary to meet the 
PSR policy requirement.
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    \11\ See, Bank For International Settlements, https://www.bis.org/cpmi/publ/d101a.pdf.
    \12\ This requirement does not apply to the Fedwire Securities 
Service. There are no competitors to the Fedwire Securities Service 
that will face such a requirement, and imposing such a requirement 
when pricing the securities services could artificially increase the 
cost of these services.
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    Effective tax rate. Like the imputed capital structure, the 
effective tax rate is calculated based on data from U.S. publicly 
traded firms. The tax rate is the mean of the weighted average rates of 
the U.S. publicly traded firm market over the past 5 years.
    Debt and equity financing. The imputed short- and long-term debt 
financing rates are derived from the nonfinancial commercial paper 
rates from the Federal Reserve Board's H.15 Selected Interest Rates 
release (AA and A2/P2) and the annual Merrill Lynch Corporate & High 
Yield Index rate, respectively. The rates for debt and equity financing 
are applied to the priced services estimated imputed short-term debt, 
long-term debt, and equity needed to finance short- and long-term 
assets and meet equity requirements.
    The increase in the 2018 PSAF to $18.9 million from $16.6 million 
in 2017 is primarily attributable to a $1.1 million increase in the 
cost of debt and a $0.8 million increase in the return on equity, both 
driven by increased imputed funding needs for long-term assets arising 
from a higher net pension asset balance. System sales tax expenses 
increased by $0.7 million and were offset, in part, by a $0.3 million 
decrease in Board of Governors expenses.
    Projected 2018 Federal Reserve priced services assets, reflected in 
table 3, have decreased $186.8 million from 2017. This decrease is 
primarily due to a $154.0 million decrease in the balance of items in 
process of collection and a $70.2 million decrease in imputed 
investments in federal funds, offset by a net increase of $35.7 million 
in the long-term assets inclusive of net pension asset; Bank premises, 
furniture, and equipment; and deferred charges. The decrease in net 
short-term assets to be financed of $3.6 million had a minimal effect 
on the PSAF. Net credit float (items in process of collection less 
deferred credit items) decreased by $154.0 million, primarily 
attributable to the continued effect of new deposit deadlines 
associated with the Endpoint Cut service deposit deadlines implemented 
in July 2016, which were intended to reduce float and items in process 
of collection. The decrease in net credit float had an equivalent 
effect on the balance of imputed investments in Treasury securities. 
The resulting balance of 2018 imputed investments in federal funds was 
sufficient to comply with the PSR policy expectations for Fedwire 
Funds, and no additional costs were incurred. As shown in table 3, 
imputed equity for 2018 is $57.8 million, a decrease of $0.7 million 
from the equity imputed for 2017. In accordance with ASC 715, this 
amount includes an accumulated other comprehensive loss of $637.2 
million.
    Table 4 reflects the portion of short- and long-term assets that 
must be financed with actual or imputed liabilities and equity. Debt 
and equity imputed to fund the 2018 priced services assets within the 
observed market leverage ratio produced an equity level that did not 
meet the FDIC minimum equity requirements. As a result, additional 
equity was imputed to meet the FDIC requirements, and imputed long-term 
debt was reduced. The ratio of capital to risk-weighted assets meets 
the required 10 percent of risk-weighted assets, and equity exceeds 5 
percent of total assets (table 6). In 2018, long-term debt and equity 
was imputed to meet the asset funding requirements and reflects the 
leverage ratio observed in the market; additional equity of $1.5 
million was required (table 5) to meet the market leverage ratio.
    Table 5 shows the derivation of the 2018 and 2017 PSAF. Financing 
costs for 2018 are $1.9 million higher than in 2017. The allocation of 
equity based on the capital structure observed in the market increased 
in 2018 to 41.8 percent from 41.6 percent in 2017. The increased equity 
balance and the slightly higher cost of equity result in a pretax ROE 
that is $0.7 million higher than the 2017 pretax ROE. Imputed sales 
taxes increased to $3.9 million in 2018 from $3.2 million in 2017. The 
priced services portion of the Board's expenses decreased $0.3 million 
to $5.1 million in 2018. The effective income tax rate used in 2018 was 
22.7 percent, the same rate used in 2017.

[[Page 52911]]



          Table 3--Comparison of Pro Forma Balance Sheets for Budgeted Federal Reserve Priced Services
                                [Millions of dollars--projected average for year]
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                                                                      2018            2017            Change
----------------------------------------------------------------------------------------------------------------
Short-term assets:
    Receivables................................................           $36.6           $36.6            $0.0
    Materials and supplies.....................................             0.5             0.6            (0.1)
    Prepaid expenses...........................................            13.0            11.2             1.8
    Items in process of collection \13\........................            87.0           241.0          (154.0)
                                                                ------------------------------------------------
        Total short-term assets................................           137.1           289.4          (152.3)
Imputed investments: \14\
    Imputed investment in Treasury Securities..................  ..............  ..............  ...............
    Imputed investment in Fed Funds............................           174.8           245.0           (70.2)
                                                                ------------------------------------------------
        Total imputed investments..............................           174.8           245.0           (70.2)
Long-term assets:
    Premises \15\..............................................           103.9           128.7           (24.8)
    Furniture and equipment....................................            38.9            39.0            (0.1)
    Leasehold improvements and long-term prepayments...........           100.3           104.8            (4.5)
    Net pension asset..........................................            76.6            10.9            65.7
    Deferred tax asset.........................................           185.6           186.1            (0.5)
                                                                ------------------------------------------------
        Total long-term assets.................................           505.3           469.6            35.7
                                                                ------------------------------------------------
            Total assets.......................................           817.2         1,003.9          (186.8)
                                                                ================================================
Short-term liabilities:
    Deferred credit items......................................           261.8           486.0          (224.2)
    Short-term debt............................................            14.5            18.1            (3.6)
    Short-term payables........................................            35.6            30.2             5.3
                                                                ------------------------------------------------
        Total short-term liabilities...........................           311.9           534.4          (222.5)
Long-term liabilities:
    Pension liability..........................................  ..............  ..............  ...............
    Long-term debt.............................................            76.9            48.4            28.5
    Postemployment/postretirement benefits and net pension                370.5           362.5             8.0
     liabilities \16\..........................................
                                                                ------------------------------------------------
        Total liabilities......................................           759.3           945.3          (186.0)
        Equity \17\............................................            57.8            58.6            (0.7)
                                                                ------------------------------------------------
            Total liabilities and equity.......................           817.2         1,003.9          (186.8)
----------------------------------------------------------------------------------------------------------------

     
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    \13\ Credit float, which represents the difference between items 
in process of collection and deferred credit items, occurs when the 
Reserve Banks debit the paying bank for transactions prior to 
providing credit to the depositing bank. Float is directly estimated 
at the service level.
    \14\ Consistent with the Board's PSR policy, the Reserve Banks' 
priced services will hold six months of the Fedwire Funds Service's 
current operating expenses as liquid net financial assets and equity 
on the pro forma balance sheet. Six months of the Fedwire Funds 
Service's projected current operating expenses is $51.4 million. In 
2018, $57.8 million of equity was imputed to meet the regulatory 
capital requirements.
    \15\ Includes the allocation of Board of Governors assets to 
priced services of $1.1 million for 2018 and $1.2 million for 2017.
    \16\ Includes the allocation of Board of Governors liabilities 
to priced services of $0.6 million for 2018 and 2017.
    \17\ Includes an accumulated other comprehensive loss of $637.2 
million for 2018 and $635.1 million for 2017, which reflects the 
ongoing amortization of the accumulated loss in accordance with FAS 
158 [ASC 715]. Future gains or losses, and their effects on the pro 
forma balance sheet, cannot be projected. See table 5 for 
calculation of required imputed equity amount.

[[Page 52912]]



           Table 4--Imputed Funding for Priced-Services Assets
                          [Millions of dollars]
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                                           2018               2017
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A. Short-term asset financing:
    Short-term assets to be
     financed:
        Receivables...............              $36.6              $36.6
        Materials and supplies....                0.5                0.6
        Prepaid expenses..........               13.0               11.2
                                   -------------------------------------
    Total short-term assets to be                50.1               48.4
     financed.....................
        Short-term payables.......               35.6               30.2
                                   -------------------------------------
    Net short-term assets to be                  14.5               18.1
     financed.....................
                                   =====================================
    Imputed short-term debt                      14.5               18.1
     financing \18\...............
                                   =====================================
B. Long-term asset financing:
    Long-term assets to be
     financed:
        Premises..................              103.9              128.7
        Furniture and equipment...               38.9               39.0
        Leasehold improvements and              100.3              104.8
         long-term prepayments....
        Net pension asset.........               76.6               10.9
        Deferred tax asset........              185.6              186.1
                                   -------------------------------------
    Total long-term assets to be                505.3              469.6
     financed.....................
        Net pension liability.....  .................  .................
        Postemployment/                         370.5              362.5
         postretirement benefits
         and net pension
         liabilities..............
                                   -------------------------------------
        Net long-term assets to be              134.8              107.0
         financed.................
                                   =====================================
        Imputed long-term debt                   76.9               48.4
         \18\.....................
        Imputed equity \18\.......               57.8               58.6
                                   -------------------------------------
            Total long-term                     134.8              107.0
             financing............
------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \18\ See table 5 for calculation.

                                  Table 5--Derivation of the 2018 and 2017 PSAF
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                      2018                                  2017
                                     ---------------------------------------------------------------------------
                                             Debt              Equity              Debt              Equity
----------------------------------------------------------------------------------------------------------------
A. Imputed long-term debt and
 equity:
    Net long-term assets to finance.             $134.8             $134.8             $107.0             $107.0
    Capital structure observed in                 58.2%              41.8%              58.4%              41.6%
     market.........................
                                     ---------------------------------------------------------------------------
    Pre-adjusted long-term debt and              $ 78.4             $ 56.4             $ 62.5             $ 44.5
     equity.........................
    Equity adjustments: \19\
        Equity to meet capital        .................               57.8  .................               58.6
         requirements...............
        Adjustment to debt and                    (1.5)                1.5             (14.1)               14.1
         equity funding given
         capital requirements \20\..
        Adjusted equity balance.....  .................               57.8  .................               58.6
        Equity to meet capital        .................  .................  .................  .................
         requirements \21\..........
                                     ---------------------------------------------------------------------------
            Total imputed long-term              $ 76.9             $ 57.8             $ 48.4             $ 58.6
             debt and equity........
                                     ===========================================================================
B. Cost of capital:
    Elements of capital costs:
        Short-term debt \22\........    $ 14.5 x 1.3% =              $ 0.2    $ 18.1 x 0.6% =              $ 0.1
        Long-term debt \22\.........      76.9 x 3.8% =                3.0      48.4 x 4.0% =                1.9
        Equity \23\.................     57.8 x 11.7% =                6.7     58.6 x 10.2% =                6.0
                                     ---------------------------------------------------------------------------
                                                                     $ 9.9                                 $ 8.0
C. Incremental cost of PSR policy:
    Equity to meet policy...........       -- x 11.7% =  .................       -- x 10.2% =  .................
D. Other required PSAF costs:
    Sales taxes.....................              $ 3.9  .................              $ 3.2  .................

[[Page 52913]]

 
    Board of Governors expenses.....                5.1  .................                5.4  .................
                                     ---------------------------------------------------------------------------
                                      .................                9.0  .................                8.6
                                     ---------------------------------------------------------------------------
                                      .................             $ 18.9  .................             $ 16.6
                                     ===========================================================================
E. Total PSAF
    As a percent of assets..........  .................               2.3%  .................               1.5%
    As a percent of expenses........  .................               4.1%  .................               3.9%
F. Tax rates........................  .................              22.7%  .................              22.7%
----------------------------------------------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \19\ If minimum equity constraints are not met after imputing 
equity based on the capital structure observed in the market, 
additional equity is imputed to meet these constraints. The long-
term funding need was met by imputing long-term debt and equity 
based on the capital structure observed in the market (see tables 4 
and 6). In 2018, the amount of imputed equity met the minimum equity 
requirements for risk-weighted assets.
    \20\ Equity adjustment offsets are due to a shift of long-term 
debt funding to equity in order to meet FDIC capital requirements 
for well-capitalized institutions.
    \21\ Additional equity in excess of that needed to fund priced 
services assets is offset by an asset balance of imputed investments 
in treasury securities.
    \22\ Imputed short-term debt and long-term debt are computed at 
table 4.
    \23\ The 2017 ROE is equal to a risk-free rate plus a risk 
premium (beta * market risk premium). The 2017 after-tax CAPM ROE is 
calculated as 1.09% + (1.0 * 7.93%) = 9.03%. Using a tax rate of 
22.7%, the after-tax ROE is converted into a pretax ROE, which 
results in a pretax ROE of (9.03%/(1-22.7%)) = 11.67%. Calculations 
may be affected by rounding.

                Table 6--Computation of 2018 Capital Adequacy for Federal Reserve Priced Services
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                               Assets          Risk weight      Weighted assets
----------------------------------------------------------------------------------------------------------------
Imputed investments:
    1-Year Treasury securities \24\
    Federal funds \25\.................................             $174.8                0.2              $35.0
                                                        --------------------------------------------------------
        Total imputed investments......................              174.8  .................               35.0
Receivables............................................               36.6                0.2                7.3
Materials and supplies.................................                0.5                1.0                0.5
Prepaid expenses.......................................               13.0                1.0               13.0
Items in process of collection.........................               87.0                0.2               17.4
Premises...............................................              103.9                1.0              103.9
Furniture and equipment................................               38.9                1.0               38.9
Leasehold improvements and long-term prepayments.......              100.3                1.0              100.3
Net pension asset......................................               76.6                1.0               76.6
Deferred tax asset.....................................              185.6                1.0              185.6
                                                        --------------------------------------------------------
    Total..............................................             $817.2  .................             $578.4
                                                        ========================================================
Imputed equity:
    Capital to risk-weighted assets....................              10.0%  .................  .................
    Capital to total assets............................               7.1%  .................  .................
----------------------------------------------------------------------------------------------------------------

    C. Check Service--Table 7 shows the 2016 actual, 2017 estimated, 
and 2018 budgeted cost-recovery performance for the commercial check 
service.
---------------------------------------------------------------------------

    \24\ If minimum equity constraints are not met after imputing 
equity based on all other financial statement components, additional 
equity is imputed to meet these constraints. Additional equity 
imputed to meet minimum equity requirements is invested solely in 
Treasury securities. The imputed investments are similar to those 
for which rates are available on the Federal Reserve's H.15 
statistical release, which can be located at http://www.federalreserve.gov/releases/h15/data.htm.
    \25\ The investments are imputed based on the amounts arising 
from the collection of items prior to providing credit according to 
established availability schedules.

[[Page 52914]]



                          Table 7--Check Service Pro Forma Cost and Revenue Performance
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                   Recovery rate
              Year                    Revenue      Total expense    Met income     Targeted ROE   after targeted
                                                                       (ROE)                          ROE (%)
                                               1               2               3               4               5
                                                                           [1-2]                     [1/(2 + 4)]
----------------------------------------------------------------------------------------------------------------
2016 (actual)...................           154.2           135.6            18.6             1.3           112.7
2017 (estimate).................           142.6           134.7             7.9             1.4           104.8
2018 (budget)...................           135.4           132.2             3.1             1.6           101.2
----------------------------------------------------------------------------------------------------------------

    1. 2017 Estimate--The Reserve Banks estimate that the check service 
will recover 104.8 percent of total expenses and targeted ROE, compared 
with a 2017 budgeted recovery rate of 104.1 percent. Greater-than-
expected check volumes processed by the Reserve Banks and lower-than-
expected costs have influenced the check service's cost recovery.
    The decline in Reserve Bank check volume was not as great as 
previously anticipated. Through August, both total commercial forward 
and total commercial return check volumes were only 0.4 percent lower 
than they were during the same period last year. Consistent with 
anticipated fourth quarter declines, for full-year 2017, the Reserve 
Banks estimate that their total forward check volume will decline 1.3 
percent (compared with a budgeted decline of 5.0 percent) and their 
total return check volume will decline 1.0 percent (compared with a 
budgeted decline of 10.1 percent) from 2016 levels.\26\
---------------------------------------------------------------------------

    \26\ Total Reserve Bank forward check volumes are expected to be 
5.2 billion in 2017. Total Reserve Bank return check volumes are 
expected to be 31.8 million in 2017.
---------------------------------------------------------------------------

    2. 2018 Pricing--The Reserve Banks expect the check service to 
recover 101.2 percent of total expenses and targeted ROE in 2018. The 
Reserve Banks project revenue to be $135.4 million, a decline of 5.0 
percent from the 2017 estimate. This decline is driven in part by an 
anticipated continued general decline in the number of checks written 
and competition from correspondent banks, aggregators, and direct 
exchanges.\27\ Total expenses for the check service are projected to be 
$132.2 million, a decrease of $2.5 million, or 1.9 percent, from 2017 
expenses, primarily because of reduced operating costs, including cost 
savings associated with increased efficiencies of the Reserve Banks' 
customer support services.
---------------------------------------------------------------------------

    \27\ The Reserve Banks estimate that total commercial forward 
check volumes in 2018 will decline 4.7 percent, to 4.9 billion, and 
total commercial return check volumes will decline 3.5 percent, to 
30.7 million in 2018.
---------------------------------------------------------------------------

    The Reserve Banks evaluate and set tier assignments annually based 
on changes in the volume of items received by endpoints. In 2018, the 
Reserve Banks will reassign the tier placement of 478 forward and 977 
return endpoints in the FedForward and FedReturn products, 
respectively.\28\
---------------------------------------------------------------------------

    \28\ The tiers for 2018 are available at https://www.frbservices.org/resources/fees/check-2018.html.
---------------------------------------------------------------------------

    Based on these 2018 tier assignments, the Reserve Banks will for 
the FedReturn deposit options (FedReturn Standard ICL and FedReturn 
Premium Daily Fee A) increase all per-item fees, except substitute 
checks, by 3 percent, rounded to the nearest penny. Table 8 shows the 
2018 fees.

                                        Table 8--FedReturn Per-Item Fees
----------------------------------------------------------------------------------------------------------------
                                                       9:00 p.m.       1:00 a.m.      12:30 p.m.
--------------------------------------------------------------------------------------------------
FedReturn Standard ICL:
    Tier 1........................................           $0.15           $0.45           $0.15
    Tier 2........................................            0.21            0.51            0.21
    Tier 3........................................            0.62            0.92            0.62
    Tier 4........................................            0.82            1.12            0.82
    PDF...........................................            1.03            1.33            1.03
    Substitute Check..............................            1.50            1.50            1.50
FedReturn Premium Daily Fee A:
    Tier 0........................................  ..............            0.01            0.03
    Tier 1........................................  ..............            0.05            0.07
    Tier 2........................................  ..............            0.10            0.12
    Tier 3........................................  ..............            0.52            0.54
    Tier 4........................................  ..............            0.72            0.74
    PDF...........................................  ..............            0.93            0.95
    Substitute Check..............................  ..............            1.50            1.50
----------------------------------------------------------------------------------------------------------------

    The Reserve Banks will also lower the average daily receipt volume 
thresholds for tiers 1, 2, and 3 of the FedForward daily subscription 
fee premium deposit options (FedForward Premium Daily Fee A, B, and 
C).\29\ Table 9 shows the

[[Page 52915]]

2017 volume thresholds and the 2018 thresholds.
---------------------------------------------------------------------------

    \29\ As part of the Reserve Banks 2016 restructured FedForward 
and FedReturn fee schedules, the Reserve Banks use a volume-based 
tiered pricing structure to determine per-item fees based on the 
average daily receipt volume an endpoint receives from chartered 
institutions through the Reserve Banks. Tiers for the three premium 
variations of the Reserve Banks' daily subscription fee deposit 
options (FedForward Premium Daily Fee A, B, and C) are based only on 
volume received by the Reserve Banks' top 15 customers, which 
represent the likely users of the deposit options. These premium 
daily fee options include a fifth tier, Tier 0, composed of routing 
numbers for which the Reserve Banks currently receive little to no 
volume from the specified subset of Reserve Bank customers (and 
which therefore cannot currently be assigned to the other tiers with 
sufficient predictability). Tier 0 is evaluated annually, along with 
all other tiers and endpoints, and endpoints cannot be placed in 
Tier 0 if they have previously been assigned to one of the other 
tiers.

  Table 9--Forward Premium Daily Deposit Option Tier Volume Thresholds
------------------------------------------------------------------------
                              2017 average daily     2018 average daily
           Tier                forward receipt        forward receipt
                               volume items/day       volume items/day
------------------------------------------------------------------------
0.........................  See explanation below  See explanation
                             *.                     below.*
1.........................  Over 30,000..........  Over 25,000.
2.........................  4,000-30,000.........  3,301-25,000.
3.........................  750-4,000............  750-3,300.
4.........................  Less than 750........  Less than 750.
------------------------------------------------------------------------
* Tier 0 consists of financial institutions that meet both of the
  following criteria:
1. Less than 10 percent of their Reserve Bank forward receipt volume was
  deposited with the Reserve Banks by Premium Daily Fee depositors
  during the sample period, and
2. Their average daily Reserve Bank forward receipt volume exceeded 150
  items per day during the sample period.

    Together, these changes to the Reserve Banks' FedReturn pricing and 
FedForward Premium Daily Fee volume thresholds are intended to 
facilitate longer-term cost recovery for the check service while 
providing price stability for customers that may otherwise experience 
significant price fluctuations as a result of the Reserve Banks' 2018 
tier assignments.
    Finally, in light of today's electronic check-processing 
environment, the Reserve Banks will increase fees to encourage 
depositors to shift volume away from legacy paper-related products. The 
Reserve Banks will increase the cash letter fee for paper forward 
deposits from $10 to $15, and increase the per-item fee for paper 
forward deposits and paper return deposits by $1 from $2.50 to $3.50 
and from $5.50 to $6.50, respectively.\30\ The Reserve Banks will also 
increase all fees for the FedImage product 10 percent, rounded to the 
nearest decimal place.\31\ Table 10 shows the 2018 FedImage fees.
---------------------------------------------------------------------------

    \30\ Increases apply to both unencoded and encoded forward 
deposits, and qualified and unqualified return deposits. Unencoded 
forward items are those items deposited without encoding of certain 
elements, such as amount, added to the MICR line. Unqualified items 
are those return items that have not been prepared for automated 
processing.
    \31\ Because of rounding, the individual price increases range 
from 9 percent to 12.5 percent.

                     Table 10--FedImage Service Fees
------------------------------------------------------------------------
                                             Fixed fee     Per item fee
------------------------------------------------------------------------
Image Archive:
    Image Capture + 7 business day                 $5.50         $0.0080
     archive............................
    Image Capture On-Us Surcharge.......  ..............          0.0193
    30 business day archive.............  ..............          0.0010
    60 business day archive.............  ..............          0.0012
    7-year archive/11-year archive......  ..............          0.0018
    Dual archive (Transition period up    ..............          0.0011
     to 120 days).......................
    Extended dual archive (More than 120  ..............          0.0110
     days)..............................
    Back File Conversion................            3.85          0.0110
    Electronic On-Us Service............            3.85          0.0110
    Extended RAID Storage:
        61 days to 6 months.............  ..............          0.0009
        61 days to 12 months............  ..............          0.0022
        61 days to 24 months............  ..............          0.0055
Image Retrievals:
    Retrievals to view via FedLine        ..............          0.3900
     Web[supreg] inquiry................
    Retrievals to email via FedLine Web:
        Request via FedLine Web inquiry.  ..............          0.3900
        Recurring request...............  ..............          0.3900
        Image Access and Retrievals       ..............          0.3900
         through a Gateway..............
        Subscription Retrievals.........  ..............          0.0024
        Manual FedImage Requests          ..............          6.6000
         (requests performed by FRB
         staff).........................
Image Delivery:
    Physical Media:
        CD-ROM Select Accounts Service--           16.50          0.0170
         RAID...........................
        CD-ROM--Tape....................           16.50          0.1100
------------------------------------------------------------------------

    The Reserve Banks estimate that the announced price changes will 
result in a 0.4 percent average price increase for check customers.
    The primary risks to the Reserve Banks' ability to achieve budgeted 
2018 cost recovery for the check service include greater-than-expected 
declines in check volume due to the general reduction in check writing 
and increased competition from correspondent banks, aggregators, and 
direct exchanges, which will result in lower-than-anticipated revenue.
    D. FedACH Service--Table 11 shows the 2016 actual, 2017 estimate, 
and 2018 budgeted cost-recovery performance for the commercial FedACH 
service.

[[Page 52916]]



                         Table 11--FedACH Service Pro Forma Cost and Revenue Performance
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                    5 Recovery
                                                      2 Total      3 Net income                     rate after
              Year                   1 Revenue        expense          (ROE)      4 Targeted ROE   targeted ROE
                                                                                                        (%)
                                               1               2               3               4               5
                                                                           [1-2]                     [1/(2 + 4)]
----------------------------------------------------------------------------------------------------------------
2016 (actual)...................           131.0           131.4            -0.3             1.3            98.8
2017 (estimate).................           141.3           142.9            -1.6             1.6            97.8
2018 (budget)...................           148.5           152.4            -4.0             1.9            96.2
----------------------------------------------------------------------------------------------------------------

    1. 2017 Estimate--The Reserve Banks estimate that the FedACH 
service will recover 97.8 percent of total expenses and targeted ROE, 
compared with a 2017 budgeted recovery rate of 95.7 percent, as the 
2017 hiring freeze resulted in lower-than budgeted operating costs. 
Through August, FedACH commercial origination and receipt volume was 
6.0 percent higher than it was during the same period last year. For 
full-year 2017, the Reserve Banks estimate that FedACH commercial 
origination and receipt volume will increase 5.8 percent from 2016 
levels, in line with the budgeted increase of 5.7 percent.
    2. 2018 Pricing--The Reserve Banks expect the FedACH service to 
recover 96.2 percent of total expenses and targeted ROE in 2018. FedACH 
commercial origination and receipt volume is projected to grow 5.2 
percent, contributing to an increase of $7.2 million in total revenue, 
from the 2017 estimate. Total expenses are projected increase $9.5 
million from 2017 expenses, primarily because of costs associated with 
the development of the new FedACH technology platform.
    The Reserve Banks will increase the base per-item fees for 
origination and receipt from $0.0032 to $0.0035. The Reserve Banks will 
also increase per-item volume-based discounts by $0.0003 for 
origination discounts based on origination volume and all receipt 
discounts. There are no changes to the existing origination volume 
discounts based on receipt volume. These changes provide an effective 
offset with no price change for customers meeting the volume discount 
thresholds. The Reserve Banks will also increase the monthly FedACH 
Participation Fee from $58 to $65.
    The Reserve Banks estimate that the combined price changes will 
result in a 3.6 percent average price increase for FedACH customers.
    While the Reserve Banks are not budgeted to fully recover costs in 
2018, they are expected to fully recover costs following the 
finalization of the FedACH technology modernization project. To fully 
recover costs in 2018, fees will need to be significantly increased to 
cover the increased costs associated with the technology upgrade, which 
will result in significant overrecovery once the upgrade is complete. 
Instead the Reserve Banks continue to moderately increase FedACH fees 
to minimize pricing volatility and promote long-term price stability 
for customers.
    The primary risks to the Reserve Banks' ability to achieve budgeted 
2018 cost recovery for the FedACH service are unanticipated cost 
overruns associated with the FedACH technology modernization project 
and higher-than-expected support and overhead costs. Other risks 
include lower-than-expected volume and associated revenue due to 
unanticipated mergers and acquisitions and loss of market share due to 
exchanges directly between banks and volume shifts to the private-
sector operator.
    E. Fedwire Funds and National Settlement Services--Table 12 shows 
the 2016 actual, 2017 estimate, and 2018 budgeted cost-recovery 
performance for the Fedwire Funds and National Settlement Services.

         Table 12--Fedwire Funds and National Settlement Services Pro Forma Cost and Revenue Performance
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                    5  Recovery
                                                     2  Total      3  Net income    4  Targeted     rate after
              Year                  1  Revenue        expense          (ROE)            ROE        targeted ROE
                                                                                                        (%)
                                               1               2               3               4               5
                                                                           [1-2]                     [1/(2 + 4)]
----------------------------------------------------------------------------------------------------------------
2016 (actual)...................           123.0           117.8             5.3             1.3           103.3
2017 (estimate).................           130.0           121.6             8.5             1.3           105.9
2018 (budget)...................           130.6           124.1             6.5             1.4           104.0
----------------------------------------------------------------------------------------------------------------

    1. 2017 Estimate--The Reserve Banks estimate that the Fedwire Funds 
and National Settlement Services will recover 105.9 percent of total 
expenses and targeted ROE, compared with a 2017 budgeted recovery rate 
of 101.1 percent. Through August, Fedwire Funds Service online volume 
was 3.4 percent higher than it was during the same period last year. 
For full-year 2017, the Reserve Banks estimate that Fedwire Funds 
Services online volume will increase 1.1 percent from 2016 levels, 
compared with the 1.1 percent volume decrease that had been budgeted. 
Through August, the National Settlement Service (NSS) settlement file 
volume was 0.8 percent higher than it was during the same period last 
year, and settlement entry volume was 5.3 percent higher. For the full 
year, the

[[Page 52917]]

Reserve Banks estimate that settlement file volume will increase 0.3 
percent (compared with a budgeted 5.7 percent increase) and settlement 
entry volume will increase 4.0 percent from 2016 levels (compared with 
a budgeted 0.6 percent increase). The 2017 estimate for the NSS 
settlement file volume is lower than budgeted because the 2017 budget 
included an assumption of additional arrangements that never 
materialized. The NSS settlement entry volume grew more than expected 
due to an existing arrangement that increased entries submitted by 50 
percent.
    2. 2018 Pricing--The Reserve Banks expect the Fedwire Funds and 
National Settlement Services to recover 104.0 percent of total expenses 
and targeted ROE. Revenue is projected to be $130.6 million, an 
increase of 0.5 percent from the 2017 estimate. The Reserve Banks 
project total expenses to be $2.5 million higher than the 2017 
expenses, primarily reflecting investments in new initiatives to 
improve resiliency and operational functionality as well as other 
business and technology initiatives.
    The Reserve Banks will adjust the incentive pricing fees for the 
Fedwire Funds Service by decreasing the Tier 3 per-item pre-incentive 
fee from $0.17 to $0.16.\32\ The Tier 3 per-item incentive fee, which 
is derived from the Tier 3 per-item pre-incentive fee, will decrease 
from $0.034 to $0.032. The Reserve Banks will also decrease the payment 
notification origination surcharge from $0.20 to $0.01. The Reserve 
Banks estimate that the price changes will result in a 1.2 percent 
average price decrease for Fedwire Funds customers.
---------------------------------------------------------------------------

    \32\ The per-item pre-incentive fee is the fee that the Reserve 
Banks charge for transfers that do not qualify for incentive 
discounts. The Tier 1 per-item pre-incentive fee applies to the 
first 14,000 transfers, the Tier 2 per-item pre-incentive fee 
applies to the next 76,000 transfers, and the Tier 3 per-item pre-
incentive fee applies to any additional transfers. The Reserve Banks 
apply an 80 percent incentive discount to transfers once the volume 
of transfers is greater than 60 percent of a customer's historic 
benchmark volume.
---------------------------------------------------------------------------

    The Reserve Banks will not change NSS fees for 2018.
    The primary risks to the Reserve Banks' ability to achieve budgeted 
2018 cost recovery for these services are cost overruns from new 
initiatives to improve resiliency and operational functionality.
    F. Fedwire Securities Service--Table 13 shows the 2016 actual, 2017 
estimate, and 2018 budgeted cost recovery performance for the Fedwire 
Securities Service.\33\
---------------------------------------------------------------------------

    \33\ The Reserve Banks provide transfer services for securities 
issued by the U.S. Treasury, federal government agencies, 
government-sponsored enterprises, and certain international 
institutions. The priced component of this service, reflected in 
this memorandum, consists of revenues, expenses, and volumes 
associated with the transfer of all non-Treasury securities. For 
Treasury securities, the U.S. Treasury assesses fees for the 
securities transfer component of the service. The Reserve Banks 
assess a fee for the funds settlement component of a Treasury 
securities transfer; this component is not treated as a priced 
service.

                   Table 13--Fedwire Securities Service Pro Forma Cost and Revenue Performance
                                              [dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                    5  Recovery
                                                     2  Total      3  Net income    4  Targeted     rate after
              Year                  1  Revenue        expense          (ROE)            ROE        targeted ROE
                                                                                                        (%)
                                               1               2               3               4               5
                                                                           [1-2]                     [1/(2 + 4)]
----------------------------------------------------------------------------------------------------------------
2016 (actual)...................            25.9            25.8             0.0             0.2            99.2
2017 (estimate).................            28.4            27.3             1.1             0.3           103.1
2018 (budget)...................            27.3            27.7            -0.4             0.3            97.2
----------------------------------------------------------------------------------------------------------------

    1. 2017 Estimate--The Reserve Banks estimate that the Fedwire 
Securities Service will recover 103.1 percent of total expenses and 
targeted ROE, compared with a 2017 budgeted recovery rate of 97.8 
percent. The Reserve Banks incurred lower-than-budgeted operating 
costs, offsetting lower-than-budgeted volume estimates in key services, 
which led to a higher-than-expected recovery.
    Through August, Fedwire Securities Service online agency transfer 
volume was 7.9 percent lower than it was during the same period last 
year. For full-year 2017, the Reserve Banks estimate that Fedwire 
Securities Service online agency transfer volume will decline 14.7 
percent from 2016 levels, compared with a budgeted decline of 11.8 
percent. The reduction in volume primarily reflects three market 
trends. First, JP Morgan Chase is exiting the U.S. government 
securities clearing and settlement business for its broker-dealer 
services, which began gradually in 2017 and is targeted to be complete 
by the end of 2018.\34\ Second, increase interest rates have led to 
less prepayment on mortgages and decreasing issuance, which in turn 
have led to a decrease in settlement activity for agency mortgage-
backed securities over Fedwire Securities. Third, the Fixed Income 
Clearing Corporation launched a new netting settlement logic in January 
2016 and launched the Mortgage-Backed Securities (MBS) novation project 
in mid-2017, in a phased- in approach, which led to the reduction in 
the number of Agency securities transfers over the Fedwire Securities 
Service.\35\
---------------------------------------------------------------------------

    \34\ JP Morgan Chase announced in July 2016, its intent to exit 
the government securities clearing and settlement business. In light 
of JP Morgan Chase's exit, broker-dealer services are housed almost 
exclusively at BNY Mellon.
    \35\ Information on the Fixed Income Clearing Corporation's new 
settlement logic and the MBS novation project can be found at http://www.dtcc.com/.
---------------------------------------------------------------------------

    Through August, account maintenance volume was 5.5 percent lower 
than it was during the same period last year. For full-year 2017, the 
Reserve Banks estimate that account maintenance volume will decline 5.5 
percent from 2016 levels, compared with a budgeted decline of 7.6 
percent. The higher-than-expected account maintenance volume is the 
result of estimated customer account closures not materializing. 
Through August, the number of agency issues maintained was 3.8 percent 
lower than the same period last year. For full-year 2017, the Reserve 
Banks estimate that the number of agency issues maintained will decline 
3.1 percent from 2016 levels, compared with a budgeted decline of 2.1 
percent.
    2. 2018 Pricing--The Reserve Banks expect the Fedwire Securities 
Service to recover 97.2 percent of total expenses and targeted ROE in 
2018. The Reserve Banks project that online agency transfer activity 
will decline 11.0 percent in 2018, the number of accounts maintained 
will decrease 3.5 percent,

[[Page 52918]]

and the number of agency issues maintained will decrease 1.7 
percent.\36\ The Reserve Banks continue to project a decrease in online 
transfers as JP Morgan Chase's exit from the U.S. government securities 
clearing and settlement business for its broker-dealer services 
continues and reaches steady state by the end of 2018 and FICC's 
netting changes are fully adopted. In addition, if interest rates 
continue to increase, rate increases may lead to less mortgage 
refinancing, and, in turn, less issuance and settlement activity for 
mortgage-backed securities over Fedwire Securities. Moreover, the 
reduction in Agency debt issuance, reflecting the U.S. Treasury and the 
Federal Housing Finance Agency's requirement for a reduction in 
government-sponsored enterprise portfolios, will lead to reduced 
funding needed for new debt issuance.\37\
---------------------------------------------------------------------------

    \36\ The online transfer fee, monthly account maintenance fee, 
and monthly issue maintenance fee accounted for approximately 94 
percent of total Fedwire Securities Service revenue through August 
2017.
    \37\ Government-sponsored enterprises are reducing their 
retained portfolio 15 percent annually through 2018, as mandated by 
the Senior Preferred Stock Purchase Agreements, until each portfolio 
reaches a target level of $250 billion. Further information on these 
agreements can be found at https://www.fhfa.gov/senior-preferred-stock-purchase-agreements.
---------------------------------------------------------------------------

    Revenue is projected to be $27.3 million, a decrease of 3.9 percent 
from the 2017 estimate. The Reserve Banks also project that 2018 
expenses will increase by $0.4 million compared with 2017 expenses, 
reflecting higher expected operating costs. Higher operating costs in 
2018 primarily reflect investments to advance new initiatives to 
improve resiliency and operational functionality as well as other 
business and technology initiatives.
    The Reserve Banks will not change Fedwire Securities fees for 2018.
    The primary risks to the Reserve Banks' ability to achieve budgeted 
2018 cost recovery for these services are lower-than-expected volume 
resulting from the pace of structural changes in government securities 
settlement, and cost overruns from new initiatives to improve 
resiliency and operational functionality.
    G. FedLine Access--The Reserve Banks charge fees for the electronic 
connections that depository institutions use to access priced services 
and allocate the costs and revenue associated with this electronic 
access to the various priced services. There are currently six FedLine 
channels through which customers can access the Reserve Banks' priced 
services: FedMail, FedLine Exchange, FedLine Web, FedLine Advantage, 
FedLine Command, and FedLine Direct.\38\ The Reserve Banks package 
these channels into eleven FedLine packages, described below, that are 
supplemented by a number of premium (or [aacute] la carte) access and 
accounting information options. In addition, the Reserve Banks offer 
FedComplete packages, which are bundled offerings of FedLine 
connections and a fixed number of FedACH, Fedwire Funds, and Check 21-
enabled services.
---------------------------------------------------------------------------

    \38\ FedMail, FedLine Exchange, FedLine Web, FedLine Advantage, 
FedLine Command, and FedLine Direct are registered trademarks of the 
Federal Reserve Banks.
---------------------------------------------------------------------------

    Eight attended access packages offer manual access to critical 
payment and information services via a web-based interface. The FedMail 
package provides access to basic information services via email, while 
the two FedLine Exchange packages are designed to provide certain 
services, such as the E-Payments Routing Directory, to customers that 
otherwise do not use FedLine for Federal Reserve Financial Services. 
The two FedLine Web packages offer online attended access to a range of 
services, including cash services, FedACH information services, and 
check services. Three FedLine Advantage packages expand upon the 
FedLine Web packages and offer attended access to critical 
transactional services: FedACH, Fedwire Funds, and Fedwire Securities.
    Three unattended access packages are computer-to-computer, IP-based 
interfaces. The FedLine Command package offers an unattended connection 
to FedACH as well as to most accounting information services. The two 
remaining options are FedLine Direct packages, which allow for 
unattended connections at one of two connection speeds to FedACH, 
Fedwire Funds, and Fedwire Securities transactional and information 
services and to most accounting information services.\39\
---------------------------------------------------------------------------

    \39\ None of the FedLine packages offer an unattended connection 
to check services. The Reserve Banks offer an unattended check 
product, Check 21 Large File Delivery, outside of FedLine that 
allows a depository institution to upload and download check image 
cash letters automatically via a direct network connection to the 
Reserve Banks.
---------------------------------------------------------------------------

    The Reserve Banks will modify the existing monthly fees for FedLine 
Advantage, Command, and Direct and FedComplete packages to include the 
price of one or two VPN devices, depending on the package, plus the 
cost of associated vendor maintenance activities.\40\ Historically, 
customers purchased their VPNs directly from a vendor. As a result, the 
$1,500 new customer credit for FedComplete customers will be 
eliminated. This credit was originally designed to offset the one-time 
startup costs associated largely with the VPN device purchase. The 
price modifications to include one VPN device is a price increase of 
$35 for FedLine Advantage, FedLine Advantage Plus, and FedLine Command 
Plus and a price increase of $50 for FedLine Direct Plus. The price 
modifications to include two VPN devices is a price increase of $70 for 
FedLine Advantage Premier and a price increase of $100 for FedLine 
Direct Premier packages. Reserve Bank provisioning of VPN devices will 
improve resiliency and increase billing efficiency.
---------------------------------------------------------------------------

    \40\ For FedLine Advantage and Command, this hardware is 
Customer Premises Equipment (CPE) or a Virtual Private Network (VPN) 
device. For FedLine Direct, the hardware is commonly a Wide Area 
Network (WAN) router.
     VPN devices are being upgraded to Sprint's VPN Managed Solution 
starting 2018 through 2020 as part of a three-year refresh cycle. 
New devices will be provisioned to customers, in waves, starting 
mid-2018.
---------------------------------------------------------------------------

    The Reserve Banks will also introduce two FedComplete packages, 
FedComplete 100C Plus and FedComplete 200C Plus, priced at $1,375 and 
$1,900 per month, respectively.\41\ These packages will capitalize on 
existing FedComplete pricing discounts and include the FedLine Command 
access solution. The packages are targeted toward lower-volume 
customers to help automate their processing of SameDay ACH transactions 
and reduce their overall fees. These new packages will simplify service 
selection and increase fee predictability.
---------------------------------------------------------------------------

    \41\ All changes to the existing FedComplete packages for 2018 
will also be incorporated in the FedComplete 100C Plus and 
FedComplete 200C Plus packages.
---------------------------------------------------------------------------

    In addition to the changes above for the 2018 FedComplete packages, 
the Reserve Banks will make six other package changes to maintain 
consistency with other product offices' product and pricing changes: 
(1) Add the SameDay ACH origination participation fee and surcharge; 
(2) remove FedMail-FedLine Exchange Subscriber 5-pack, consistent with 
the previously announced unbundling of the FedMail service; (3) 
increase volume overage surcharges for FedForward, from $0.01 to 
$0.037, FedReturn from $0.75 to $0.82, FedACH origination from $0.0025 
to $0.0035, and Fedwire Funds origination from $0.70 to $0.82; (4) 
implement FedReceipt, FedACH receipt and Fedwire Funds transaction 
receipt surcharges of $0.00005, $0.00035, and $0.082, respectively; (5) 
implement a threshold limit of 46 items for FedForward Cash Letters; 
and (6)

[[Page 52919]]

adjust FedComplete package prices to maintain an effective discount of 
less than 20 percent compared to the cost of purchasing services 
separately.\42\
---------------------------------------------------------------------------

    \42\ Customers that use priced FedMail services will be required 
to purchase the FedMail-FedLine Exchange Subscriber 5-pack 
separately.
---------------------------------------------------------------------------

    Finally, the Reserve Banks will increase the legacy software fee 
for FedLine Direct customers that have not converted to new IBM[supreg] 
MQ software. The fee will vary based on the number of customers 
remaining on the legacy system, up to $80,000/month through 3/31/18 and 
up to $150,000/month thereafter.
    The Reserve Banks estimate that the price changes will result in a 
4.3 percent average price increase for FedLine customers. This is 
primarily driven by the VPN device billing changes.

II. Analysis of Competitive Effect

    All operational and legal changes considered by the Board that have 
a substantial effect on payment system participants are subject to the 
competitive impact analysis described in the March 1990 policy ``The 
Federal Reserve in the Payments System.'' \43\ Under this policy, the 
Board assesses whether proposed changes will have a direct and material 
adverse effect on the ability of other service providers to compete 
effectively with the Federal Reserve in providing similar services 
because of differing legal powers or constraints or because of a 
dominant market position deriving from such legal differences. If any 
proposed changes create such an effect, the Board must further evaluate 
the changes to assess whether the benefits associated with the 
changes--such as contributions to payment system efficiency, payment 
system integrity, or other Board objectives--can be achieved while 
minimizing the adverse effect on competition.
---------------------------------------------------------------------------

    \43\ Federal Reserve Regulatory Service (FRRS) 9-1558.
---------------------------------------------------------------------------

    The 2018 fees, fee structures, and changes in service will not have 
a direct and material adverse effect on the ability of other service 
providers to compete effectively with the Reserve Banks in providing 
similar services. The changes should permit the Reserve Banks to earn a 
ROE that is comparable to overall market returns and provide for full 
cost recovery over the long run.

III. 2018 Fee Schedules

                    FedACH Service 2018 Fee Schedule
  [Effective January 2, 2018. Bold indicates changes from 2017 prices.]
------------------------------------------------------------------------
                                                            Fee
------------------------------------------------------------------------
FedACH minimum monthly fee:
    Originating Depository Financial Institution  $50.00.
     (ODFI) \44\.
    Receiving Depository Financial Institution    40.00.
     (RDFI) \45\.
Origination (per item or record):
    Forward or return items.....................  0.0035.
    SameDay Service--forward item \46\..........  0.0010 surcharge.
    Addenda record..............................  0.0015.
    FedLine Web-originated returns and            0.35.
     notification of change (NOC) \47\.
    Facsimile Exception Return/NOC \48\.........  45.00.
    SameDay Exception Return....................  45.00.
    Automated NOC...............................  0.20.
    Volume-based discounts (based on monthly
     billed origination volume) \49\ per item
     when origination volume is:
        750,001 to 1,500,000 items per month....  0.0008 discount.
        more than 1,500,000 items per month.....  0.0010 discount.
    Volume-based discounts (based on monthly
     billed receipt volume) \50\ per item when
     receipt volume is:
        10,000,001 to 15,000,000 items per month  0.0002 discount.
        more than 15,000,000 items per month....  0.0003 discount.
Receipt (per item or record):
    Forward Item................................  0.0035.
    Return Item.................................  0.0075.
    Addenda record..............................  0.0015.
    Volume-based discounts:.....................
        Non-Premium Receivers \51\ per item when
         volume is:
            750,001 to 12,500,000 items per       0.0017 discount.
             month \52\.
            more than 12,500,000 items per month  0.0019 discount.
             \53\.
        Premium Receivers, Level One \54\ per
         item when volume is:
            750,001 to 1,500,000 items per month  0.0017 discount.
             \52\.
            1,500,001 to 2,500,000 items per      0.0017 discount.
             month \53\.
            2,500,001 to 12,500,000 items per     0.0018 discount.
             month \53\.
            more than 12,500,000 items per month  0.0020 discount.
             \53\.
        Premium Receivers, Level Two \55\ per
         item when volume is:
            750,001 to 1,500,000 items per month  0.0017 discount.
             \52\.
            1,500,001 to 2,500,000 items per      0.0017 discount.
             month \53\.
            2,500,001 to 12,500,000 items per     0.0019 discount.
             month \53\.
            more than 12,500,000 items per month  0.0021 discount.
             \53\.
FedACH Bundled Package Pricing Discount:
    Monthly Bundled Service Package Discount      20.00 discount.
     \56\.
Monthly FedACH Risk[supreg] Management fees:
 \57\
    For up to 5 criteria sets...................  35.00.
    For 6 through 11 criteria sets..............  70.00.
    For 12 through 23 criteria sets.............  125.00.
    For 24 through 47 criteria sets.............  150.00.
    For 48 through 95 criteria sets.............  250.00.

[[Page 52920]]

 
    For 96 through 191 criteria sets............  425.00.
    For 192 through 383 criteria sets...........  675.00.
    For 384 through 584 criteria sets...........  850.00.
    For more than 585 criteria sets.............  1,100.00.
Risk origination monitoring batch (based on
 total monthly volume):
    For 1 through 100,000 batches (per batch)...  0.007.
    For more than 100,000 batches (per batch)...  0.0035.
Monthly FedPayments[supreg] Reporter Service:
    FedPayments Reporter Service package pricing
     includes:
        ACH Received Entries Detail--Customer
         and Depository Financial Institution.
        ACH Return Reason Report--Customer and
         Depository Financial Institution.
        ACH Volume Summary by SEC Code--
         Customer.
        Customer Transaction Activity.
        Death Notification.
        International (IAT).
        Notification of Change.
        Payment Data Information File.
        Remittance Advice Detail.
        Remittance Advice Summary.
        Return Item.
        Return Ratio.
        Social Security Beneficiary.
        Originator Setup.
        Report Delivery via FedLine Access
         Solution.
        On Demand Surcharge.....................  1.00.
        Report delivery via FedLine file access
         solution (monthly fee):
            For up to 50 reports................  40.00.
            For 51 through 150 reports..........  60.00.
            For 151 through 500 reports.........  110.00.
            For 501 through 1,000 reports.......  200.00.
            For 1,001 through 1,500 reports.....  285.00.
            For 1,501 through 2,500 reports.....  460.00.
            For 2,501 through 3,500 reports.....  640.00.
            For 3,501 through 4,500 reports.....  820.00.
            For 4,501 through 5,500 reports.....  995.00.
            For 5,501 through 7,000 reports.....  1,225.00.
            For 7,001 through 8,500 reports.....  1,440.00.
            For 8,501 through 10,000 reports....  1,650.00.
            For more than 10,000 reports........  1,800.00.
        Premier reports (per report generated):
         \58\
            For 1 through 5 reports.............  10.00.
            For 6 through 10 reports............  6.00.
            For 11 or more reports..............  1.00.
            On Demand Surcharge.................  1.00.
        ACH Routing Number Activity Report:
            For 1 through 5 reports.............  10.00.
            For 6 through 10 reports............  6.00.
            For 11 or more reports..............  1.00.
            On Demand Surcharge.................  1.00.
        On-us inclusion:
            Participation (monthly fee per RTN).  10.00.
            Per-item............................  0.0030.
            Per-addenda.........................  0.0015.
            Report delivery via encrypted email   0.20.
             (per email).
Other Fees and Discounts:
    Monthly fee (per routing number):
        FedACH Participation Fee \59\...........  65.00.
        SameDay Service Origination               10.00 surcharge.
         Participation Fee \60\.
        FedACH Settlement Fee \61\..............  55.00.
        FedACH Information File Extract Fee.....  150.00.
        IAT Output File Sort Fee................  75.00.
        Fixed Participation Fee--Automated NOCs   5.00.
         \62\.
    Non-Electronic Input/Output fee \63\
        CD/DVD (CD or DVD)......................  50.00.
        Paper (file or report)..................  50.00.
    Fees and Credits Established by NACHA: \64\
        NACHA Same Day Entry fee (per item).....  0.052.
        NACHA Same Day Entry credit (per item)..  0.052 (credit).
        NACHA Unauthorized Entry fee (per item).  4.50.
        NACHA Unauthorized Entry credit (per      4.50 (credit).
         item).
        NACHA Admin Network fee (monthly fee per  22.00.
         RTN).

[[Page 52921]]

 
        NACHA Admin Network fee (per entry).....  0.000185.
FedGlobal[supreg] ACH Payments: \65\
    Fixed Monthly Fee: \66\
        Monthly origination volume more than 500  185.00.
         items.
        Monthly origination volume between 161    60.00.
         and 500 items.
        Monthly origination volume less than 161  20.00.
         items.
    Per-item Origination Fee for Monthly Volume
     more than 500 Items (surcharge) \67\
        Canada service..........................  0.50.
        Mexico service..........................  0.55.
        Panama service..........................  0.60.
        Europe service..........................  1.13.
    Per-item Origination Fee for Monthly Volume
     between 161 and 500 items (surcharge) \67\
        Canada service..........................  0.75.
        Mexico service..........................  0.80.
        Panama service..........................  0.85.
        Europe service..........................  1.38.
    Per-item Origination Fee for Monthly Volume
     Less than 160 items (surcharge) \67\
        Canada service..........................  1.00.
        Mexico service..........................  1.05.
        Panama service..........................  1.10.
        Europe service..........................  1.63.
    Other FedGlobal ACH Payments Fees:
        Canada service
        Return received from Canada \68\........  0.99 (surcharge).
        Trace of item at receiving gateway......  5.50.
        Trace of item not at receiving gateway..  7.00.
        Mexico service
        Return received from Mexico \68\........  0.91 (surcharge).
        Item trace..............................  13.50.
        Foreign currency to foreign currency      0.67 (surcharge).
         (F3X) item originated to Mexico \67\.
        Panama service
        Return received from Panama \68\........  1.00 (surcharge).
        Item trace..............................  7.00.
        NOC.....................................  0.72.
        Europe service
        F3X item originated to Europe \67\......  1.25 (surcharge).
        Return received from Europe \68\........  1.35 (surcharge).
        Item trace..............................  7.00.
------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \44\ Any ODFI incurring less than $50 for the following fees 
will be charged a variable amount to reach the minimum: Forward 
value and non-value item origination fees, and FedGlobal ACH 
origination surcharges.
    \45\ Any RDFI not originating forward value and non-value items 
and incurring less than $40 in receipt fees will be charged a 
variable amount to reach the minimum. Any RDFI that originates 
forward value and nonvalue items incurring less than $50 in forward 
value and nonvalue item origination fees will only be charged a 
variable amount to reach the minimum monthly origination fee.
    \46\ This surcharge is assessed on all forward items that 
qualify for same day processing and settlement and is incremental to 
the standard origination item fee.
    \47\ The fee includes the item and addenda fees in addition to 
the conversion fee.
    \48\ The fee includes the item and addenda fees in addition to 
the conversion fee. Reserve Banks also assess a $30 fee for every 
government paper return/NOC they process.
    \49\ Origination volumes at these levels qualify for a waterfall 
discount which includes all FedACH origination items.
    \50\ Origination discounts based on monthly billed receipt 
volume apply only to those items received by FedACH receiving points 
and are available only to Premium Receivers.
    \51\ RDFIs receiving through FedACH less than 90 percent of 
their FedACH-originated items.
    \52\ This per-item discount is a reduction to the standard 
receipt fees listed in this fee schedule.
    \53\ Receipt volumes at these levels qualify for a waterfall 
discount which includes all FedACH receipt items.
    \54\ RDFIs receiving through FedACH at least 90 percent of their 
FedACH-originated items, but less than 90 percent of all of their 
ACH items originated through any operator.
    \55\ RDFIs receiving through FedACH at least 90 percent of all 
of their ACH items originated through any operator.
    \56\ To qualify for the discount, a financial institution must 
meet all of the following criteria in a given month: (1) Be charged 
the minimum monthly fee--forward origination (57208); (2) subscribe 
to FedLine Web Plus or any higher FedLine[supreg] access solution; 
and (3) subscribe to the FedPayments Reporter service, the FedACH 
RDFI Alert service, or the FedACH Risk Origination Monitoring 
service.
    \57\ Criteria may be set for both the Origination Monitoring 
Service and the RDFI Alert Service. Subscribers with no criteria set 
up will be assessed the $35 monthly package fee.
    \58\ Premier reports generated on demand are subject to the 
package/tiered fees plus a surcharge.
    \59\ The fee applies to routing numbers that have received or 
originated FedACH transactions during a month. Institutions that 
receive only U.S. government transactions or that elect to use a 
private sector operator exclusively are not assessed the fee.
    \60\ This surcharge is assessed to any routing number that 
originates at least one item meeting the criteria for same day 
processing and settlement in a given month.
    \61\ The fee is applied to any routing number with activity 
during a month, including routing numbers of institutions that elect 
to use a private-sector operator exclusively but also have items 
routed to or from customers that access the ACH network through 
FedACH. This fee does not apply to routing numbers that use the 
Reserve Banks for only U.S. government transactions.
    \62\ Fee will be assessed only when automated NOCs are 
generated.
    \63\ Limited services are offered in contingency situations.
    \64\ The fees and credits listed are collected from the ODFI and 
credited to NACHA (admin network) or to the RDFI (same day entry and 
unauthorized entry) in accordance with the ACH Rules.
    \65\ The international fees and surcharges vary from country to 
country as these are negotiated with each international gateway 
operator.
    \66\ A single monthly fee based on total FedGlobal ACH Payments 
origination volume.
    \67\ This per-item surcharge is in addition to the standard 
domestic origination fees listed in this fee schedule.
    \68\ This per-item surcharge is in addition to the standard 
domestic receipt fees listed in this fee schedule.

[[Page 52922]]



    Fedwire Funds and National Settlement Services 2018 Fee Schedule
  [Effective January 2, 2018. Bold indicates changes from 2017 prices.]
------------------------------------------------------------------------
                                                               Fee
------------------------------------------------------------------------
                          Fedwire Funds Service
------------------------------------------------------------------------
Monthly Participation Fee.............................           $95.00.
    Basic volume-based pre-incentive transfer fee                 0.820.
     (originations and receipts)--per transfer for the
     first 14,000 transfers per month.................
    additional transfers up to 90,000 per month.......            0.245.
    every transfer over 90,000 per month..............            0.160.
Volume-based transfer fee with the incentive discount
 (originations and receipts)--per eligible transfer
 for: \69\
    the first 14,000 transfers per month..............            0.164.
    additional transfers up to 90,000 per month.......            0.049.
    every transfer over 90,000 per month..............            0.032.
Surcharge for Off-line Transfers (Originations and                60.00.
 Receipts)............................................
Surcharge for End-of-Day Transfer Originations \70\...             0.26.
Monthly FedPayments Manager import/export fee \71\....            50.00.
Surcharge for high-value payments:
    >$10 million......................................             0.14.
    >$100 million.....................................             0.36.
Surcharge for Payment Notification:
    Origination Surcharge \72\........................             0.01.
    Receipt Volume \72\ \73\..........................              N/A.
    Delivery of Reports--Hard Copy Reports to On-Line             50.00.
     Customers........................................
    Special Settlement Arrangements (charge per                  150.00.
     settlement day)\74\..............................
------------------------------------------------------------------------
                       National Settlement Service
------------------------------------------------------------------------
Basic:
    Settlement Entry Fee..............................             1.50.
    Settlement File Fee...............................            30.00.
    Surcharge for Off-line File Origination \75\......            45.00.
    Minimum Monthly Fee \76\..........................            60.00.
------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \69\ The incentive discounts apply to the volume that exceeds 60 
percent of a customer's historic benchmark volume. Historic 
benchmark volume is based on a customer's average daily activity 
over the previous five calendar years. If a customer has fewer than 
five full calendar years of previous activity, its historic 
benchmark volume is based on its daily activity for as many full 
calendar years of data as are available. If a customer has less than 
one year of past activity, then the customer qualifies automatically 
for incentive discounts for the year. The applicable incentive 
discounts are as follows: $0.656 for transfers up to 14,000; $0.196 
for transfers 14,001 to 90,000; and $0.128 for transfers over 
90,000.
    \70\ This surcharge applies to originators of transfers that are 
processed by the Reserve Banks after 5:00 p.m. eastern time.
    \71\ This fee is charged to any Fedwire Funds participant that 
originates a transfer message via the FedPayments Manager (FPM) 
Funds tool and has the import/export processing option setting 
active at any point during the month.
    \72\ Payment Notification and End-of-Day Origination surcharges 
apply to each Fedwire funds transfer message.
    \73\ Provided on billing statement for informational purposes 
only.
    \74\ This charge is assessed to settlement arrangements that use 
the Fedwire Funds Service to effect the settlement of interbank 
obligations (as opposed to those that use the National Settlement 
Service). With respect to such special settlement arrangements, 
other charges may be assessed for each funds transfer into or out of 
the accounts used in connection with such arrangements.
    \75\ Offline files will be accepted only on an exception basis 
when a settlement agent's primary and backup means of transmitting 
settlement files are both unavailable.
    \76\ Any settlement arrangement that accrues less than $60 of 
charges during a calendar month will be assessed a variable amount 
to reach the minimum monthly fee.

 Fedwire Securities Service 2018 Fee Schedule (Non-Treasury Securities)
  [Effective January 2, 2018. Bold indicates changes from 2017 prices.]
------------------------------------------------------------------------
                                                               Fee
------------------------------------------------------------------------
Basic Transfer Fee:
    Transfer or reversal originated or received.......             $0.77
Surcharge: \77\
    Offline origination & receipt surcharge...........             80.00
Monthly Maintenance Fees:
    Account maintenance (per account).................             57.50
    Issues maintained (per issue/per account).........              0.77
    Claim Adjustment Fee \78\.........................              0.80
    GNMA Serial Note Stripping or Reconstitution Fee                9.00
     \79\.............................................
    Joint Custody Origination Surcharge \80\..........             46.00
    Delivery of Reports--Hard Copy Reports to On-Line              50.00
     Customers........................................
------------------------------------------------------------------------


[[Page 52923]]

     
---------------------------------------------------------------------------

    \77\ This surcharge is set by the Federal Reserve Banks. It is 
in addition to any basic transfer or reversal fee.
    \78\ The Federal Reserve Banks offer an automated claim 
adjustment process only for Agency mortgage-backed securities.
    \79\ This fee is set by and remitted to the Government National 
Mortgage Association (GNMA).
    \80\ The Federal Reserve Banks charge participants a Joint 
Custody Origination Surcharge for both Agency and Treasury 
securities.

                        FedLine 2018 Fee Schedule
  [Effective January 2, 2018. Bold indicates changes from 2017 prices.]
------------------------------------------------------------------------
                                                            Fee
------------------------------------------------------------------------
                 FedComplete Packages (monthly) 81 82 83
------------------------------------------------------------------------
FedComplete 100A Plus...........................  $825.00.
includes:
    FedLine Advantage Plus package.
    FedLine subscriber 5-pack.
    7,500 FedForward transactions.
    46 FedForward Cash Letter items.
    70 FedReturn transactions.
    14,000 FedReceipt[supreg] transactions.
    35 Fedwire funds origination transfers.
    35 Fedwire funds receipt transfers.
    Fedwire participation fee.
    1,000 FedACH origination items.
    FedACH minimum fee.
    7,500 FedACH receipt items.
    FedACH receipt minimum fee.
    10 FedACH web return/NOC.
    500 FedACH addenda originated.
    1,000 FedACH addenda received.
    100 FedACH Same-Day origination items.
    FedACH account servicing.
    FedACH settlement.
    FedACH Same-Day origination participation
     fee.
FedComplete 100A Premier........................  $900.00.
includes:
    FedLine Advantage Premier package.
    Volumes included in the FedComplete 100A
     Plus package.
FedComplete 100C Plus...........................  $1,375.00.
includes:
    FedLine Command Plus package.
    Volumes included in the FedComplete 100A
     Plus package.
FedComplete 200A Plus...........................  $1,350.00.
includes:
    FedLine Advantage Plus package.
    FedLine subscriber 5-pack.
    25,000 FedForward transactions.
    46 FedForward Cash Letter items.
    225 FedReturn transactions.
    25,000 FedReceipt transactions.
    100 Fedwire funds origination transfers.
    100 Fedwire funds receipt transfers.
    Fedwire participation fee.
    2,000 FedACH origination items.
    FedACH minimum fee.
    25,000 FedACH receipt items.
    FedACH receipt minimum fee.
    20 FedACH web return/NOC.
    750 FedACH addenda originated.
    1,500 FedACH addenda received.
    200 FedACH Same-Day origination items.
    FedACH account servicing.
    FedACH settlement.
    FedACH Same-Day origination participation
     fee.
FedComplete 200A Premier........................  $1,425.00.
includes:
    FedLine Advantage Premier package.
    Volumes included in the FedComplete 200A
     Plus package.
FedComplete 200C Plus...........................  $1,900.00.
includes:
    FedLine Command Plus package.
    Volumes included in the FedComplete 200A
     Plus package.

[[Page 52924]]

 
FedComplete Excess Volume and Receipt
 Surcharge:\84\
    FedForward..................................  $0.037/item.
    FedReturn...................................  $0.8200/item.
    FedReceipt..................................  $0.00005/item.
    Fedwire Funds Origination...................  $0.8200/item.
    Fedwire Funds Receipt.......................  $0.082/item.
    FedACH Origination..........................  $0.0035/item.
    FedACH Receipt..............................  $0.00035/item.
FedComplete credit adjustment...................  various.
FedComplete debit adjustment....................  various.
------------------------------------------------------------------------
               FedLine Customer Access Solutions (monthly)
------------------------------------------------------------------------
FedMail \85\....................................  $85.00.
includes:
    FedMail access channel.
    FedACH Advice and Settlement Information.
    Fedwire Funds Offline Advices.
    Check 21 Services.
    Check 21 Duplicate Notification Service.
    Check Adjustments.
    Accounting Statements.
    Daylight Overdraft Reports.
    Billing Statements.
FedLine Exchange \85\...........................  $40.00.
includes:
    E-Payments Routing Directory (manual
     download).
    FedLine Exchange Premier.\85\                 $125.00.
includes:
    FedLine Exchange package.
    E-Payments Routing Directory (auto
     download).
FedLine Web \86\................................  $110.00.
includes:
    FedLine Web access channel.
    Services included in the FedLine Exchange
     package.
    Check FedForward, FedReturn and FedReceipt
     services.
    Check Adjustments.
    FedACH Information Services & Derived
     Returns/NOCs.
    FedACH Risk Services (includes RDFI Alert
     and Returns Reporting).
    FedCash[supreg] Services.
    Service Charge Information.
FedLine Web Plus \86\...........................  $160.00.
includes:
    FedLine Web package.
    FedACH Risk Origination Monitoring Service.
    FedACH FedPayments Reporter Service.
    Check Large Dollar Return.
    Check FedImage Services.
    Account Management Information.
    Various accounting and inquiry services
     (ABMS inquiry, IAS/PSR inquiry, IAS
     detailed inquiries, notifications and
     advices, end-of-day accounting file (PDF)).
    E-Payments Routing Directory (auto
     download).
FedLine Advantage \86\..........................  $415.00.
includes:
    FedLine Advantage access channel.
    One VPN device.
    Services included in the FedLine Web
     package.
    FedACH transactions.
    Fedwire Funds transactions.
    Fedwire Securities transactions.
    National Settlement Service transactions.
    Check Large Dollar Return.
    Check FedImage Services.
    Account Management Information with Intra-
     Day Download Search File.
    Various accounting and inquiry services
     (ABMS inquiry, IAS/PSR inquiry, IAS
     detailed inquiries, notifications and
     advices, end-of-day accounting file (PDF)).
FedLine Advantage Plus \86\.....................  $460.00.
includes:
    FedLine Advantage package.
    One VPN device.
    FedACH Risk Origination Monitoring Service.

[[Page 52925]]

 
    FedACH FedPayments Reporter Service.
    Fedwire Funds FedPayments Manager Import/
     Export (less than 250 Fedwire transactions
     and one routing number per month).
    FedTransaction Analyzer[supreg] (less than
     250 Fedwire transactions and one routing
     number per month).
    E-Payments Routing Directory (auto
     download).
FedLine Advantage Premier \85\..................  $570.00.
includes:
    FedLine Advantage Plus package.
    Two VPN devices.
    Fedwire Funds FedPayments Manager Import/
     Export (more than 250 Fedwire transactions
     or more than one routing number in a given
     month).
    FedTransaction Analyzer (more than 250
     Fedwire transactions or more than one
     routing number per month).
FedLine Command Plus............................  $1,035.00.
includes:
    FedLine Command access channel.
    Services included in the FedLine Advantage
     Plus package.
    One VPN device.
    Two FedLine Command server certificates.
    Fedwire Statement Services.
    Fedwire Funds FedPayments Manager Import/
     Export.
    FedTransaction Analyzer.
    Intra-Day File (I-Day CI File).
    Statement of Account Spreadsheet File
     (SASF).
    Financial Institution Reconcilement Data
     File (FIRD).
    Billing Data Format File (BDFF).
FedLine Direct Plus.............................  $3,650.00.
includes:
    FedLine Direct access channel.
    One VPN device.
    256K Dedicated WAN Connection.
    Services included in the FedLine Command
     Plus package.
    Two FedLine Direct server certificates.
    Treasury Check Information System (TCIS).
FedLine Direct Premier..........................  $6,800.00.
includes:
    FedLine Direct Plus package.
    T1 dedicated WAN connection.
    Two VPN devices.
------------------------------------------------------------------------
                    A la carte options (monthly) \87\
------------------------------------------------------------------------
Electronic Access:
    FedMail--FedLine Exchange Subscriber 5-pack.  $15.00.
    FedLine Subscriber 5-pack (access to Web and  $80.00.
     Advantage).
    Additional FedLine Command Certificate \88\.  $100.00.
    Additional FedLine Direct Certificate \89\..  $100.00.
    Additional VPNs \90\........................  $100.00.
    Additional dedicated connections............
        256K....................................  $2,500.00.
        T1......................................  $3,200.00.
    FedLine International Setup (one-time fee)..  $5,000.00.
    FedLine Custom Implementation Fee \91\......  various.
    Network Diversity...........................  $2,000.00.
    FedLine Direct Contingency Solution.........  $1,000.00.
    Check 21 Large File Delivery \92\...........  various.
    FedMail Email (for FedLine customers).......  $20.00.
    FedMail Fax.................................  $100.00.
    VPN Device Modification.....................  $200.00.
    VPN Device Missed Activation Appointment....  $175.00.
    VPN Device Expedited Hardware Surcharge.....  $100.00.
    VPN Device Replacement or Move..............  $300.00.
    E-Payments Automated Download (1-5 Add'l      $75.
     Codes).
    E-Payments Automated Download (6-20 Add'l     $150.
     Codes).
    E-Payments Automated Download (21-50 Add'l    $300.
     Codes).
    E-Payments Automated Download (51-100 Add'l   $500.
     Codes).
    E-Payments Automated Download (101-250 Add'l  $1,000.
     Codes).
    E-Payments Automated Download (>250 Add'l     $2,000.
     Codes).
Electronic Access Training:
    Learning Center.............................  complimentary.
    Certificate Retrieval Download Tutorial.....  complimentary.
Accounting Information Services:

[[Page 52926]]

 
    Cash Management System (CMS) Plus--Own
     report--up to six files with: \93\
        no respondent/sub-account activity......  $60.00.
        less than 10 respondent and/or sub-       $125.00.
         accounts.
        10-50 respondent and/or sub-accounts....  $250.00.
        51-100 respondents and/or sub-accounts..  $500.00.
        101-500 respondents and/or sub-accounts.  $750.00.
        >500 respondents and/or sub-accounts....  $1,000.00.
    End-of-Day Financial Institution              $150.00.
     Reconcilement Data File \94\.
    Statement of Account Spreadsheet File \95\..  $150.00.
    Intra-day Download Search File (with AMI)     $150.00.
     \96\.
ACTS Report: \97\
    <20 sub-accounts............................  $500.00.
    21-40 sub-accounts..........................  $1,000.00.
    41-60 sub-accounts..........................  $1,500.00.
    >60 sub-accounts............................  $2,000.00.
Other:
    Software Certification......................
    Vendor Pass-Through Fee.....................  various.
    Electronic Access Credit Adjustment.........  various.
    Electronic Access Debit Adjustment..........  various.
    Legacy Software Fee \98\....................  various.
------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \81\ FedComplete packages are all-electronic service options 
that bundle payment services with an access solution for one monthly 
fee.
    \82\ Packages with an `A' include the FedLine Advantage channel, 
while packages with `C' include the FedLine Command channel.
    \83\ FedComplete customers that use the email service would be 
charged the FedMail Email a la carte fee and for all FedMail-FedLine 
Exchange Subscriber 5-packs.
    \84\ Per-item surcharges are in addition to the standard fees 
listed in the applicable priced services fee schedules.
    \85\ FedMail and FedLine Exchange packages do not include user 
credentials, which are required to access priced services and 
certain informational services. Credentials are sold separately in 
packs of five via the FedMail-FedLine Exchange Subscriber 5-pack.
    \86\ FedLine Web and Advantage packages do not include user 
credentials, which are required to access priced services and 
certain informational services. Credentials are sold separately in 
packs of five via the FedLine Subscriber 5-pack.
    \87\ These add-on services can be purchased only with a FedLine 
Customer Access Service option.
    \88\ Additional FedLine Command Certificates available for 
FedLine Command and Direct packages only.
    \89\ Additional FedLine Direct Certificates available for 
FedLine Direct packages only.
    \90\ Additional VPNs are available for FedLine Advantage, 
FedLine Command, and FedLine Direct packages only.
    \91\ The FedLine Custom Implementation Fee is $2,500 or $5,000 
based on the complexity of the setup.
    \92\ The fee ranges from $1,400 to $20,725 depending on the 
size, speed, and location of the connection.
    \93\ Cash Management Service options are limited to plus and 
premier packages.
    \94\ The End of Day Reconcilement File option is available for 
FedLine Web Plus, FedLine Advantage Plus, and Premier packages. It 
is available for no extra fee in FedLine Command Plus and Direct 
packages.
    \95\ The Statement of Account Spreadsheet File option is 
available for FedLine Web Plus, FedLine Advantage Plus, and Premier 
packages. It is available for no extra fee in FedLine Command Plus 
and Direct packages.
    \96\ The Intra-day Download Search File option is available for 
the FedLine Web Plus package. It is available for no extra fee in 
FedLine Advantage and higher packages.
    \97\ ACT Report options are limited to FedLine Command Plus, 
FedLine Direct Plus, and FedLine Direct Premier packages.
    \98\ The fee will vary based on the number of customers 
remaining on the legacy system, up to $80,000/month through 3/31/18 
and up to $150,000/month thereafter.

    By order of the Board of Governors of the Federal Reserve 
System, November 6, 2017.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
[FR Doc. 2017-24736 Filed 11-14-17; 8:45 am]
 BILLING CODE 6210-01-P