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US Federal Reserve: br03 | Federal Reserve System | United States Treasury Security
March 2003 This publication is available from Publications Services, Board of Governors of the Federal Reserve System, Washington, DC 25001. It is also available on the Board’s World Wide Web site, at HTTP://www.federalreserve.gov/
1 Summary of 2002 income and expenditures
7 8 8 9 10 11 11 11 12 12 15 15 15 16 18 18 19 20 21 25 Chapter 1 FEDERAL RESERVE SYSTEM
2003 System budget initiatives
Risks in the 2003 budget
2003 capital budgets
Chapter 2 BOARD OF GOVERNORS
Ramifications of the September 11 terrorist attacks
2000–2001 budget performance
Chapter 3 FEDERAL RESERVE BANKS 2002 budget performance The 2003 budget 2003 capital budget
30 Federal Reserve Banks
The Federal Reserve System consists of the Board of Governors in Washington, D.C., the twelve Federal Reserve Banks with their twenty-five Branches distrib­ uted throughout the nation, the Federal Open Market Committee (FOMC), and three advisory groups—the Federal Advisory Council, the Consumer Advi­ sory Council, and the Thrift Institutions Advisory Council. The System was cre­ ated in 1913 by the Congress to establish a safe and flexible monetary and banking system. Over the years, the Congress has given the Federal Reserve more authority and responsibility for achieving broad national economic and financial objectives. As the nation’s central bank, the Fed­ eral Reserve has many, varied responsi­ bilities. It acts to ensure that the nation’s economy grows at a pace consistent with price stability; it serves as the nation’s lender of last resort, with responsibility for forestalling national liquidity crises; and it is involved in bank supervision and regulation, with responsibilities for bank holding companies, financial holding companies (created under the GrammLeach-Bliley Act, enacted in November 1999), state-chartered banks that are members of the Federal Reserve System, the foreign activities of U.S. banks, and the U.S. activities of foreign banks. The Federal Reserve also administers the nation’s financial consumer protection laws. The Federal Reserve System plays a major role in the nation’s payment mecha­ nism. The Reserve Banks distribute cur­ rency and coin; process Fedwire, automated clearinghouse, and securities transfers; and process checks. In addition, the Federal Reserve Banks serve as the fiscal agents of the United States and provide a variety of financial services for the Treasury and other government agencies. For a fuller discussion of the Federal Reserve’s responsibilities, see the Board publication The Federal Reserve System: Purposes and Functions.
Summary of 2002 Income and Expenditures
In carrying out its responsibilities in 2002, the Federal Reserve System incurred an estimated $1.6 billion in net operating expenses. Total spending of an estimated $2.9 billion was offset by an estimated $1.3 billion in revenue from priced ser­ vices, claims for reimbursement, and other income. The major source of Federal Reserve income is earnings from the portfolio of U.S. government securities in the System Open Market Account, estimated at $25.5 billion in 2002. Earnings in excess of expenses, dividends, and surplus are transferred to the U.S. Treasury—an estimated $24.5 billion in 2002. (These earnings are treated as receipts in the U.S. budget accounting system and as antici­ pated earnings projected by the Office of Management and Budget in the U.S. budget.)
Beginning with the 1998–99 budget, the Board of Governors has operated on a two-year budget cycle and a four-year planning cycle. This multiyear process allows the Board to define and implement long-term strategies across functional areas. Given their current business needs, the Federal Reserve Banks maintain an
2 Annual Report: Budget Review, 2003
annual budget cycle. For more informa­ tion on the budget processes, see appen­ dix A.
In 2002, the Federal Reserve System accounted for costs using the following categories—monetary and economic policy, supervision and regulation of financial institutions, services to financial institutions and the public, services to the U.S. Treasury and other government agencies, and System policy direction and oversight. The Federal Reserve System plays a major role in the supervision and regula­ tion of banks and bank holding compa­ nies. The Board of Governors adopts regulations to carry out statutory direc­ tives and establishes System supervisory and regulatory policies; the Reserve Banks conduct on-site examinations and inspections of state member banks and bank holding companies, review applica­ tions for mergers, acquisitions, and changes in control from banks and bank holding companies, and take formal supervisory actions. In 2002, the Federal Reserve conducted 550 examinations of state member banks (some of them jointly with state agencies) and 580 inspections and 3,683 risk assessments of bank hold­ ing companies; it acted on 1,885 interna­ tional and domestic applications. The Board also enforces state member banks’ and certain foreign banking orga­ nizations’ compliance with the federal laws protecting consumers in their use of credit and deposit products. In 2002, the System conducted 358 compliance examinations, including 301 covering state member banks and 57 covering for­ eign banking organizations. Procedures related to the Community Reinvestment Act were included in 265 of the compli­ ance examinations. The Board’s supervisory responsibili­ ties also extend to the foreign operations of U.S. banks and, under the International Banking Act, to the U.S. operations of foreign banks. Beyond these activities, the Federal Reserve maintains continuous oversight of the banking industry to ensure the overall safety and soundness of the financial system. This broader responsibility is reflected in the System’s presence in financial markets, through open market operations, and in the Fed-
The monetary and economic policy operational area encompasses Federal Reserve actions to influence the availabil­ ity and cost of money and credit in the nation’s economy. In 2002, the FOMC held eight regularly scheduled meetings and adjusted the federal funds rate once. A vast amount of banking and finan­ cial data flows through the Reserve Banks to the Board, where it is compiled and made available to the public. The research staffs at the Board and the Reserve Banks use these data, along with information collected by other public and private institutions, to assess the state of the economy and the relationships between the financial markets and economic activity. Staff members provide background information for the Board of Governors and for each meeting of the FOMC by preparing detailed economic and financial analyses and projections for the domestic economy and international markets. The Board and the FOMC use these analyses and projections in setting reserve requirements, setting the discount rate (which affects the cost of borrowing), and conducting open market operations. Staff members also conduct longer-run
The Federal Reserve System plays a central role in the nation’s payment mechanism, which is composed of many independent systems that move funds among financial institutions across the country. The Reserve Banks obtain cur­ rency and coin from the Bureau of Engraving and Printing and from the Mint and distribute them to the public through depository institutions; they receive deposits of currency and coin from depository institutions; and they identify counterfeits and destroy currency that is unfit for circulation. In 2002, the Reserve Banks received $574.7 billion in currency and $4.6 billion in coin from depository institutions, distributed an estimated $617.4 billion in currency and $5.9 bil­ lion in coin, and destroyed $92.5 billion in unfit currency. The Reserve Banks (along with their Branches and regional centers) also pro­ cess checks for collection. In 2002, the Reserve Banks processed approximately 16.6 billion commercial checks for col­ lection, with a total value of about $15 trillion. The Federal Reserve also plays a cen­ tral role in the nation’s payments mecha­ nism through its Fedwire Funds Service. Through this service, depository institu­ tions can draw on their reserve or clear­ ing balances at the Reserve Banks and transfer funds to other institutions that maintain accounts at the Reserve Banks. In 2002, Fedwire funds participants origi­ nated approximately 115 million Fedwire funds transfers, valued at about $406 trillion. The Federal Reserve allows partici­ pants in private clearing arrangements to exchange and settle transactions through reserve or clearing account balances. The
Reserve Banks’ National Settlement Ser­ vice provides settlement services to approximately 70 local and national pri­ vate arrangements, primarily check clear­ inghouse associations but also other types of arrangements. In 2002, the Reserve Banks processed over 415,000 settlement entries for these arrangements. The Federal Reserve’s ACH service allows depository institutions to send or receive payments electronically instead of by check. Institutions use the ACH ser­ vice for credit and debit transactions. In 2002, the Reserve Banks processed approximately 5.9 billion ACH transac­ tions, valued at about $15.8 trillion. Approximately 15 percent of the transac­ tions were for the federal government; the rest were for commercial establishments. Reserve Banks provide securities ser­ vices for the handling of book-entry (com­ puter-based) securities and the collection of physical interest coupons and miscel­ laneous items. The Fedwire Securities Service allows participants to electroni­ cally transfer to other participants securi­ ties issued by the Treasury, federal gov­ ernment agencies, and other approved entities. In 2002, Fedwire securities par­ ticipants originated approximately 17 million transfers, valued at about $229 tril­ lion. The noncash collection service, through which maturing or called munici­ pal coupons and bonds are presented for collection, processed about 305,000 transactions in 2002.
The Reserve Banks provide fiscal agency and depository services to the U. S. gov­ ernment. Through deposit accounts at Reserve Banks, the government issues checks, makes payments, and collects receipts. The Reserve Banks also process Fedwire funds transfers and automated clearinghouse payments and provide the Treasury with daily statements of account
4 Annual Report: Budget Review, 2003
activity. Reserve Banks provide claims for reimbursement of approximately $300 million to the Treasury and other govern­ ment agencies for the full cost of provid­ ing these services; reimbursement was received or is expected for all of the expenses incurred. As fiscal agents, Reserve Banks provide the Department of the Treasury with services related to the federal debt. For example, Reserve Banks issue, service, and redeem marketable Treasury securi­ ties and savings bonds; they also process secondary-market Fedwire securities transfers initiated by depository institu­ tions. In 2002, the Reserve Banks processed over 166,000 competitive and noncompetitive bids for Treasury securi­ ties and printed and mailed 37.2 million savings bonds. The Reserve Banks oper­ ate two book-entry (computer-based) securities systems for the custody of Trea­ sury securities—the Fedwire book-entry securities system and TreasuryDirect. Almost all book-entry Treasury securities are maintained on Fedwire, which is also the nation’s principal securities transfer mechanism; the remainder are maintained on TreasuryDirect, which is used by individuals. As fiscal agents of the United States, the Reserve Banks also invest excess Treasury balances with approximately 1,200 depository institutions, which pay interest to Treasury for the use of the funds. In 2002, the Reserve Banks invested $504 billion of Treasury balances through the program. While most funds are callable on demand, the Reserve Banks recently piloted a program to auc­ tion investments with depository institu­ tions for a set term. As depositories, Reserve Banks collect and disburse funds on behalf of the fed­ eral government. The Reserve Banks
maintain the Treasury’s funds account, accept deposits of federal taxes and fees, pay checks drawn on the Treasury’s account, and make Fedwire and automated clearinghouse payments on behalf of the Treasury. In 2002, the Reserve Banks processed over 883 million ACH transactions and 289 million paper checks for the Treasury. In 2002, the Reserve Banks also assisted Treasury in its efforts to increase the use of electronic payment vehicles by assuming additional respon­ sibilities for the Pay.gov Internet portal, which permits the public to pay Treasury and agencies via the Internet. The Reserve Banks also provide fiscal agency and depository services to other domestic and international government agencies. Depending on the authority under which the services are provided, the Reserve Banks may maintain book-entry accounts of government agency securities; provide custody for the stock of unissued, definitive (physical) securities; maintain and update balances of outstanding bookentry and definitive securities for issuers; maintain funds accounts for government agencies; and provide various payment services, including the processing and destroying of redeemed food coupons for the U.S. Department of Agriculture.
This operational area encompasses the Board’s activities in supervising Board and Reserve Bank programs. At the Sys­ tem level, the expenses for these activi­ ties are considered overhead and are therefore allocated across the other operational areas. At the Board level, these expenses are not treated as overhead or allocated to other operational areas.
For 2003, total operating expenses are budgeted at $2,884 million, an increase of 3.1 percent from estimated 2002 expenses. Of this total, $2,629.9 million is for the Reserve Banks, and $254.1 million is for the Board of Governors (tables 1.1 and 1.2).1 Revenue from priced ser­ vices provided to depository institutions is expected to total $925.8 million, or 32.1 percent of total budgeted operating expenses. This revenue, combined with claims for reimbursement and other income, results in projected net operat­ ing expenses of $1,628.5 million.2 The System expects to recover 43.5 percent of its budgeted 2003 operating expenses through revenue from priced services, other income, and claims for reimbursement. When these items are deducted from budgeted 2003 operating expenses, the net expenses of the System show an increase of 3.7 percent from estimated 2002 net operating expenses (table 1.1). Not included in the budget for operations is the cost of currency, bud­ geted at $510.3 million for 2003, an increase of 18.5 percent from the 2002 estimated cost of $430.5 million.3 The distribution of expenses is similar to that in previous years, with the Reserve Banks’
1. The Board of Governors now budgets on a two-year cycle; in this chapter, 2003 values shown for the System and the Board reflect the approxi­ mate second-year effect of the Board’s 2002–03 budget. 2. Claims for reimbursement refers to costs of fiscal agency and depository services provided to the U.S. Treasury and other government agencies that are billed to these agencies. Other income
comes from services provided on behalf of the U.S. Treasury that are paid for by the depository insti­ tutions using the services, which include the trans­ fer of funds between depository institutions and the Treasury. 3. The Federal Reserve pays for the printing of new currency at the Bureau of Engraving and Printing. Because this cost is determined largely by public demand for new currency, it is not included in the Federal Reserve operating expenses. For more information, see appendix C, “Currency Budget.”
Table 1.1 Operating Expenses of the Federal Reserve System, Net of Receipts and Claims for Reimbursement, 2001–03
Millions of dollars except as noted Item 2001 (actuals) 2,657.8 2002 (estimated) 2,796.6 2003 (budgeted) 2,884.0 Percent change 2001–02 5.2 2002–03 3.1
Total System operating expenses ................. LESS Revenue from priced services .................. Other income ............................................ Claims for reimbursements ...................... E QUALS Net System operating expenses ............
960.4 1.1 285.6
909.6 1.0 316.3
925.8 0.8 328.9
–5.3 –9.1 10.8
1.8 –20.0 4.0
N OTE. Components may not sum to totals and may not yield percentages shown because of rounding.
Operating expenses reflect all redistributions for support and overhead, and they exclude capital outlays.
8 Annual Report: Budget Review, 2003 Table 1.2 Expenses of the Federal Reserve System for Operations and Currency, 2001–03
Millions of dollars except as noted 2001 (actuals) 2,451.2 1,573.1 878.1 206.6 149.4 57.1 2,657.8 1,722.6 935.2 350.0 2002 (estimated) 2,575.4 1,630.6 944.9 221.2 163.0 58.2 2,796.6 1,793.6 1,003.0 430.5 2003 (budgeted) 2,629.9 1,662.2 967.7 254.1 185.5 68.6 2,884.0 1,847.7 1,036.3 510.3 Percent change 2001–02 5.1 3.7 7.6 7.1 9.1 1.8 5.2 4.1 7.2 23.0 2002–03 2.1 1.9 2.4 14.9 13.8 17.8 3.1 3.0 3.3 18.5
Reserve Banks ............................................ Personnel .................................................. Nonpersonnel ........................................... Board of Governors 2 .................................... Personnel .................................................. Nonpersonnel ........................................... Total System operating expenses ............. Personnel ................................................. Nonpersonnel .......................................... Currency 3 .....................................................
N OTE. Components may not sum to totals and may not yield percentages shown because of rounding. Operating expenses exclude capital outlays. 1. For detailed information on Reserve Bank expenses, see chapter 3.
expenses accounting for 77.5 percent of the total (chart 1.1). System employment is budgeted at 24,149 for 2003, a decrease of 743 from the estimated 2002 level.
In 2003, several major initiatives will continue to affect System budgets. As dis­ cussed in more detail in chapter 3, costreduction and efficiency initiatives in the
Chart 1.1 Distribution of Expenses of the Federal Reserve System, 2003
check service, information technology, support, and other areas have helped Reserve Banks to address cost-recovery pressures in the check service as well as to continue to fund high-priority objec­ tives, such as check modernization and projects on behalf of the Treasury.
The Board and Reserve Banks have iden­ tified several risks that would require sig­ nificant resources beyond the budget. The primary risks to the Board budget include significant changes in or shocks to the economy or the financial system, and additional security and contingency requirements. Areas that present the most imminent risks to Reserve Banks in the 2003 budget are extremely challenging conditions in the check service and related Bankwide cost-reduction strategies. The impact of the recently announced check infrastruc­ ture changes are not reflected in the 2003 budgets because decisions were made after the budgets were finalized. In addi-
Board of Governors, 7.5%
Reserve Banks, 77.5%
tion, most Banks have submitted budgets for their supervision and regulation func­ tions that are based on the current condi­ tion of the banking industry. Changes from the current assumptions could affect staffing levels. Finally, although Reserve Banks are fully reimbursed for services they perform on behalf of the Treasury, there is a continuing risk that throughout the year the Treasury will request additional work from the Banks that was not contemplated when the budgets were developed.
Chart 1.3 Cumulative Change in Federal Reserve System Expenses and Federal Government Expenses, 1994–2003
From actual 1994 levels to budgeted 2003 amounts, the operating expenses of the Federal Reserve System have increased an average of 4.1 percent per year (2.2 percent per year when adjusted for infla­ tion) (chart 1.2). Over the same period, nondefense discretionary spending by the federal government has increased an an­ nual average of 5.2 percent (chart 1.3). Over the 1994–2003 period, Federal Reserve System employment has decreased 1,595 (chart 1.4). Throughout most of the 1990s, spend­ ing on bank supervision expanded to meet the increase in the number and complexChart 1.2 Operating Expenses of the
Federal Reserve System, 1994–2003
NOTE. Federal government expenses are discretionary spending less expenditures on defense. For 2002, estimated; for 2003, budgeted.
ity of examinations, the enhanced supervision of foreign institutions, the greater attention to problem institutions, and the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the Federal Deposit Insur­ ance Corporation Improvement Act of 1991. The System partially offset these increases through increased efficiencies in other operational areas, mainly services to the U.S. Treasury and services to financial institutions and the public. In the most recent years, the budget has grown at a slower rate, reflecting cost-reduction and efficiency initiatives.
NOTE . For 2002, estimated; for 2003, budgeted. 1. Calculated with the GDP price deflator.
N OTE . For 2002, estimated; for 2003, budgeted.
Annual Report: Budget Review, 2003
Continued emphasis on efficiencies is also reducing staffing levels. Employment for 2003 is projected to decrease by 743 ANP, largely because of planned staff reductions by the Reserve Banks, prima­ rily in the check, information technology, and support areas.
The capital budget for both the Reserve Banks and the Board totals $521.3 million. The Board’s 2002–03 capital budget is $29.9 million. Approximately twothirds of this total supports continued improvements in office automation and major upgrades to the information infra­ structure. Funds are also provided for the maintenance and upkeep of the Board’s two main buildings. In addition, this bud-
get includes $3.3 million for projects resulting from increased security. A more detailed discussion of the Board capital budget is included in chapter 2. The 2003 capital budget for Reserve Banks and FRIT totals $491.4 million, a $160.6 million increase from the 2002 estimated levels. The budget includes $430.5 million for the Banks and $60.9 million for FRIT. As in previous years, the 2003 capital budgets include funding for projects that support the strategic direction outlined in the Banks’ plans. These strategic goals include improving operational efficiency and effectiveness, improving services to Bank customers, and providing a safe, quality work envi­ ronment. A more detailed discussion of Reserve Bank capital budgets is included in chapter 3.
Biennially, the Board of Governors and its senior staff undertake a planning pro­ cess that results in a strategic plan for the next four years and a budget for the next two years. The revised 2002–03 budget for the Board consists of $466.0 million for operations, $1.5 million for extraor­ dinary items (projects of a unique nature), and $7.8 million for the Office of Inspec­ tor General. The Board has authorized 1,884 staff positions for operational areas and 29 positions for the Office of Inspector General; no positions are required for the extraordinary items.
To address these major planning issues, the budget includes the following major initiatives and projects for the 2002–03 period. •	Attraction and retention of staff. Ini­ tiatives to improve the Board’s ability to attract and retain staff include the variable-pay program for economists, attorneys, and officers; an increase in the employee cash award program; a 4.6 percent merit increase for 2002; and a 4.0 percent merit increase for 2003. •	Employee benefits. A major increase in health insurance rates is being funded, as are initiatives to increase the transportation subsidy, increase the Board match for deferred compensa­ tion, and fund costs associated with the revised leave policy. •	Workload. New positions and a reduc­ tion in the number of vacant positions in specific divisions in response to increased workloads, new security concerns, and implementation of the compensation initiatives will all affect salary liability. •	Information technology. Central IT support was funded at the current level, except for increases to enhance disas­ ter recovery. •	Physical plant. In line with the Board’s earlier strategic plan, a building pur­ chased in 2001 has significantly reduced the net operating cost for of­ fice space in this budget. Capital investments are planned for the Board’s facilities as discussed below, in the section on the capital budget. Noncapital improvements are also planned for the facilities.
In developing the 2002–03 plan, the Board identified the following issues. •	Management and staffing. Emphasis will be placed on recruitment, reten­ tion, management-succession plan­ ning, and organizational structure. •	Board organization. A comprehensive review of Reserve Bank oversight activities, including a reexamination of the legal requirements for oversight, could result in a more efficient, effec­ tive, and consistent approach. •	Information technology. A reexamina­ tion of information technology items allowed spending in that area to be held at current levels. •	Physical plant. The 2001 purchase of a new building will significantly lower costs for office space. •	External and internal factors. The Board and its staff stand ready to adjust priorities as necessary to deal with economic events and their effects on monetary, supervisory, and regulatory policymaking.
After the terrorist attacks on September 11, but before the approval of the 2002– 03 budget, the projects and initiatives listed below, totaling $13.8 million, were funded in the 2002–03 budget. •	Enhanced capacity Boardwide for disaster recovery, including reducing the time to resume normal operations at remote sites and increasing the amount of information and the num­ ber of systems supported at those sites •	Initiatives to enhance physical secu­ rity, including adding security staff; using bomb-sniffing dogs for greater perimeter security; using contractual support for off-site mail processing; and other, less visible, measures •	Additional staff in the Division of Reserve Bank Operations and Pay­ ment Systems to focus on system security issues in response to new ter­ rorism-related legislation, and a new section (including new staff) to focus on private-sector clearance and settle­ ment systems to increase the Board’s understanding and competence in this area •	Two positions in Banking Supervision and Regulation, in response to new terrorism-related legislation, to focus on money laundering and financial transactions associated with terrorist activity •	Four positions in the Office of the Staff Director for Management to improve the planning and coordination of con­ tingency operations and to act as a liaison with the new Office of Homeland Security After further review, in July of 2002, $11.0 million was added to the budget for the following: •	A restructuring and enhancement of the Board’s uniformed security force, which involved the addition of 98
positions, to strengthen the security provided to Board staff and premises and to implement changes according to the newly approved federal law enforcement authority of Board secu­ rity officers • Developing a contractual arrangement with private vendors for an off-site mail-processing operation to screen all mail and packages before delivery to Board premises in order to lessen the chances for the introduction of chemi­ cal, biological, radiological, or explo­ sive materials into Board buildings
The Board’s operations budget supports four broadly defined operational areas: monetary and economic policy, supervi­ sion and regulation, services to financial institutions and the public, and System policy direction and oversight (tables 2.1 and 2.2). The largest increase in expenses is in the security portions (both information and physical) of overhead, which is spread, in proportion to direct expenses, among the four operational areas. This increase does not directly enhance the efficiency or effectiveness of current Board operations, but it is necessary given the threats that the nation and the Board are now facing.
The 2002–03 revised budget for monetary and economic policy is $186.9 million, an increase of $23.4 million, or an average of 6.9 percent per year, from the 2000–01 actuals. Activities in this opera­ tional area include the Board’s monitor­ ing and analysis of developments in the money and credit markets, the setting of reserve requirements, the approval of changes in the discount rate, and other activities related to managing the nation’s monetary policy.
Board of Governors 13 Table 2.1 Expenses of the Board of Governors for Operational Areas, Extraordinary Items, and
Office of Inspector General, 2000–01 and 2002–03
Average annual percent change Operational area, extraordinary items, or Office of Inspector General 2000–01 (budgeted) 2000–01 (actuals) 2002–03 (revised budget) 2000–01 2002–03 actuals revised budget compared with compared with 2000–01 2000–01 budgeted actuals 0.5 –0.8 –2.2 –1.8 –0.5 3.4 –2.3 6.9 11.4 4.2 13.1 9.6 –57.7 10.8
Monetary and economic policy . Supervision and regulation ........ Services to financial institutions and the public ......................... System policy direction and oversight ................................. Total, Board operations ........... Extraordinary items .................... Office of Inspector General .......
161,863 156,664 8,892 63,780 391,199 7,847 6,617
163,521 154,157 8,500 61,482 387,660 8,392 6,322
186,886 191,225 9,233 78,644 465,988 1,500 7,757
Besides the additional funding for com­ pensation initiatives, programmatic increases in this area will cover the acquisition of additional data to assist staff in their responsibilities. These data relate to capital risk, retail banking fees and services, global financial markets, and consumer credit.
The 2002–03 revised budget for supervision and regulation is $191.2 million, an increase of $37.1 million, or an average of 11.4 percent per year, from the 2000–01 actuals. Activities in this area include working with other federal and state financial authorities to ensure safety and soundness in the operation of finan­ cial institutions, stability in the financial markets, and fair and equitable treatment of consumers in their financial transac­ tions. The 2002–03 budgetary increases will enhance supervisory activities such as monitoring, inspecting, and examining banking organizations to assess their con­ dition and their compliance with relevant
laws and regulations. Program increases include funding for seven positions added in late 2000, greater focus on money-laundering activities, international training and assistance to foreign govern­ ments, and a review of regulations and policies related to consumer protection. As risks to the financial sector grow, the staff will need to spend more time on bank examinations and monitoring under the risk-based supervision model imple­ mented over the past few years.
The 2002–03 revised budget for oversight of Reserve Bank services to financial institutions and the public is $9.2 million, an increase of $0.7 million, or an average of 4.2 percent per year, over the 2000–01 actuals. This operational area provides support to and oversight of the Federal Reserve Banks, including evalu­ ation of service strategies, pricing, per­ formance, risks, and service and product design of the check-collection, automated
Table 2.2 Positions Authorized at the Board of Governors for Operational Areas, Support and Overhead, and Office of Inspector General, 2000–03
Thousands of dollars except as noted Average annual percent change Operational area, extraordinary items, or Office of Inspector General 2000–01 (budgeted) 2000–01 (actuals) 2002–03 (revised budget) 2000–01 2002–03 actuals revised budget compared with compared with 2000–01 2000–01 budgeted actuals 0.0 –1.2 4.4 –1.9 3.1 0.9 0.0 0.9 ... 0.0 –0.3 0.7 0.0 3.4 8.1 3.9 3.9 3.9 ... 0.0
Monetary and economic policy .. Supervision and regulation ......... Services to financial institutions and the public .......................... System policy direction and oversight .................................. Support and overhead ................ Subtotal ............................... Reimbursable IT support ........... Total, Board operations ............ Extraordinary items ..................... Office of Inspector General ........
433 372 24 157 734 1,720 25 1,745 ... 29
430 377 24 168 858 1,857 27 1,884 ... 29
1. Includes positions for seventeen youths, ten worker trainees, and four summer interns. 2. Positions in the Division of Information Technol­ ogy that provide support to the Federal Financial Institu­
tions Examination Council for processing data collected under the Home Mortgage Disclosure Act and the Com­ munity Reinvestment Act.
clearinghouse, net settlement, currency and coin, and funds and securities trans­ fer activities of the Reserve Banks; oversight of the electronic payments mecha­ nism; and annual evaluation of the Federal Reserve System’s currency, coin, and food-coupon operations. Costs asso­ ciated with these programs will decline slightly during the next biennium because of the realization of savings from previ­ ous initiatives.
The 2002–03 revised budget for System policy direction and oversight is $78.6 million, an increase of $17.2 million, or an average of 13.1 percent per year, from the 2000–01 actuals. This operational
area covers oversight and direction of Board and Reserve Bank programs, with the exception of those mentioned under “Services to Financial Institutions and the Public,” above. The area includes programs that directly support Board mem­ bers in carrying out functions such as communicating with the Congress and the public, and oversight of significant support activities at the Reserve Banks, such as finance, human resources, audit, and information technology. Major program changes in this area include greater focus on security and contingency planning Systemwide and a new section to provide staff expertise on private-sector clearance and settle­ ment systems. Fewer vacancies and an enhanced communication program are also responsible for the substantial increase.
The Board’s 2002–03 capital budget is $29.9 million. This is $12.7 million over the 2000–01 capital expenses of $17.2 million, most of which was spent on the Eccles Building Infrastructure Enhance­ ment Project (EBIEP). Of the 2002–03 total, $19.8 million supports continued improvements in office automation and major upgrades to the information infra­ structure. Funds are also provided for the maintenance and upkeep of the Eccles and Martin Buildings. Major facility projects include the purchase of an emergency generator, replacement of the Eccles Building roof, upgrades to security at building entrances, and a design and fea­ sibility study for a major renovation of the Martin Building. An additional $3.3 million has been budgeted for projects resulting from the September 11 terrorist attacks, including substantial improvements to informa­ tion disaster recovery systems and expansion of the scope of the building entrance security upgrade project already scheduled. The EBIEP will be completed during the 2002–03 budget period. Because of the phased nature of the project, which began in July 1999, the amount budgeted, $3.5 million, is $8.3 million less than the amount provided during the 2000–01 budget period. The remaining $3.3 million of the capi­ tal budget is for projects associated with the improvements of the newly acquired building.
long-term dual occupancies. Nine posi­ tions were added to the Division of Reserve Bank Operations and Payment Systems and two positions to the Man­ agement Division in response to increased workload. Small, offsetting position adjustments were made in many divisions where efficiencies and workload factors made such changes possible. In response to September 11, 120 positions were added. These positions are necessary to increase the Board’s physical security, provide additional resources for antiterrorism and antimoney-laundering activities, and increase the Board’s expertise in private-sector clearing and settlement systems.
2000–01 Budget Performance
Board operating expenses increased by $42.4 million (12.3 percent) from 1998–99 to 2000–01. Personnel-related expenses increased by $27.5 million (10.7 percent), while expenses for goods and services increased by $15.6 million (14.9 percent). Income increased by $0.7 million (4.2 percent). Final expenses for Board operations were $387.7 million, or $3.5 million (0.9 percent) less than budgeted. The increase in personnel-related expenses (salaries, retirement, and insur­ ance) is attributable to the merit pay increases (3.5 percent in 1999, 4.9 percent in 2000, and 4.7 percent in 2001), the new variable-pay program and increased cash award programs, and sig­ nificant increases in retirement and insur­ ance costs. Health insurance costs increased by $3.8 million (32.0 percent), and retirement costs increased by $1.8 million (17.5 percent). Average employment during the 2000– 01 biennium was 1,610—18 employees (1.1 percent) lower than the 1998–99 average of 1,628. At biennium-end, the Board had 1,650 employees, the highest level of the biennium. The increase in
For the 2002–03 biennium, a net of 139 positions were added to the Board’s num­ ber of authorized positions, bringing the total to 1,884 (see appendix D, table D.2). A net increase of four positions was authorized for the Division of Consumer and Community Affairs to eliminate four
Annual Report: Budget Review, 2003 Chart 2.1 Operating Expenses of the Board of Governors, 1992–2003
employment toward period-end was con­ centrated in the oversight area (aggres­ sive hiring in the Division of Reserve Bank Operations and Payment Systems) and support area (security and facility operations). In the 2000–01 timeframe, there is little change in employment patterns in the three research divisions, where the variable-pay program for economists was implemented to increase recruiting and retention. The largest contributing factor in the increase in the goods and services areas was a shifting of information technology resources from the Century Date Change (CDC) Project, which took place during the 1998–99 cycle, to backlogged proj­ ects in the divisions, which were worked on during the 2000–01 cycle. Because the charges for IT resources used by the CDC are in the extraordinary-items budget, the Board’s operating costs increased as those resources shifted to the divisions. Increases in the contractual profes­ sional services area are the secondlargest factor in the overall increase in the goods and services area over the pervi­ ous period. This growth primarily resulted from additional security requirements following September 11. Additional increases were the result of more use of outside computer services by the Division of Banking Supervision and Regulation, growth in the amount of and cost of data acquired from third parties, and additional contractor support in the Human Resources Function of the Man­ agement Division. Partially offsetting decreases in the contractual professional services area resulted from elimination of charges associated with the Resource Shared Applications and reduced use of contractor support by the Division of Information Technology.
Millions of dollars Year Current dollars 1992 ..................... 1993 ..................... 1994 ..................... 1995 ..................... 1996 ..................... 1997 ..................... 1998 ..................... 1999 ..................... 2000 ..................... 2001 ..................... 2002 ..................... 2003 ..................... 122.8 136.3 140.7 151.2 162.7 163.3 171.7 173.5 182.5 210.9 216.9 238.1 1992 dollars1 122.8 132.8 133.9 140.4 148.2 146.1 151.7 151.4 156.1 176.6 177.9 191.2
N OTE . For 2001, actuals; for 2002–03, budgeted. Excludes the Office of Inspector General and extraordi­ nary items. The annual values for 1998–2003 are the approximate calendar-year figures contained within the respective two-year budgets. 1. Calculated with the GDP price deflator.
The rate of increase within the 2002–03 budget is 9.6 percent per year. Largely
because of security enhancements and merit pay initiatives, this is higher than the projected 6.2 percent average annual rate of increase from the 1992–93 period to the 2002–03 period (charts 2.1 through 2.4). The increase over this ten-year period is mainly attributable to the increasing complexity of Board work. This increased complexity required a net increase in positions and higher average grades, higher salary and benefit costs, and increasingly sophisticated automation systems to manage sharply increasing vol­ umes of data. Merit pay, new compen­ sation initiatives, promotions and reclas­ sifications, higher benefit costs, a lower projected number of vacancies in certain
Board of Governors 17 Chart 2.2 Expenses for Personnel Services at the Board of Governors, 1992–2003 Chart 2.4 Employment and Authorized Positions at the Board of Governors, 1992–2003
Note. See notes to chart 2.1. Year Employment 1,563 1,636 1,635 1,664 1,686 1,638 1,629 1,600 1,593 1,639 1,687 1,687
Authorized Positions 1,639 1,664 1,664 1,665 1,712 1,713 1,694 1,680 1,692 1,714 1,853 1,853
divisions, and increased use of contrac­ tual support for continuity of operations increased the budget. Approximately three-fourths of the Board’s operating expenses are for per­ sonnel; consequently, analysis of trends is heavily tied to staffing levels. From 1992 to 2003, the number of authorized positions for Board operations rose from 1,639 to 1,853, a net increase of 185, or 11.3 percent. A large part of this increase in positions is for new security precau­ tions. Reflecting the growing complexity of the Board’s work, the average grade for professional staff rose from 25 to 26. During the 10-year period, changes in banking, frequently associated with automation enhancements, increased the
Chart 2.3 Expenses for Goods and Services of the Board of Governors, 1992–2003
1992 ................... 1993 ................... 1994 ................... 1995 ................... 1996 ................... 1997 ................... 1998 ................... 1999 ................... 2000 ................... 2001 ................... 2002 ................... 2003 ...................
NOTE . Year-end data. Excludes summer intern, worker trainee, and youth positions as well as positions for the Office of Inspector General. These positions number 60 for 2002 and 2003. Includes positions that provide support to the Federal Financial Institutions Examination Council for processing data collected under the Home Mortgage Disclosure Act and the Community Reinvest­ ment Act.
complexity of safety-and-soundness supervisory activities. To adequately perform these activities, and to increase attention to consumer issues, including collection and analysis of data collected under the Home Mortgage Disclosure Act and Community Reinvestment Act, a net of thirty-four positions were added. (Many positions associated with lowerpriority work were eliminated to offset the cost of the new work.) The increas­ ing complexity of monetary policy issues resulted in an increase of twenty-five positions. Substantial change has occurred in the overall Reserve Bank en­ vironment, including numerous opera­ tional consolidations and related changes
to the governance process. As a result of these changes, as well as increased inter­ est in private-sector companies important to the nation’s financial infrastructure, nineteen positions were added. Finally, a net decrease of five administrative and support positions resulted from the Board’s efforts to outsource where fea­ sible; without these efforts, the number of administrative and support positions would have increased because of en­ hanced security and the acquisition of new office space. While the number of positions at the Board has fluctuated during the 1992– 2003 period, the salary budget (not including retirement and insurance ben­ efits) has remained relatively stable at roughly 64 percent of operating expenses. The portion of operating expenses devoted to retirement and insurance has increased approximately 1 percentage point over the period as a result of administrative actions to enhance health insurance and other benefits. The Board experienced an average annual percentage increase in expenses for goods and services of 6.4 percent over the 1992–2003 period. The largest con­ tributor to this increase was a 12.9 percent annual increase in the contractual professional services account resulting from outsourcing tasks such as security, IT services, and facilities support. Increases in the complexity of the Board’s work resulted in additional data purchases and training requests. Partially offsetting the overall increase was a significant decrease in rental costs because of the year-end 2001 acquisition of a building previously rented by the Board.
The Board’s extraordinary-items budget for 2002–03 provides funds of $1.5 million for the Survey of Small Business Finances ($0.8 million) and the Survey of Consumer Finances ($0.7 million). These surveys will improve the quality of economic data produced by the Board by gathering information on the economic behavior of U.S. households and the financial health of U.S. firms. A summary article on the survey of consumer finan­ ces is scheduled to be published in the January 2003 Federal Reserve Bulle­ tin, and a version of the survey data will be released to the public shortly there-after. Preparations for the 2004 Survey of Consumer Finances are expected to be underway the first quarter of 2003. During the course of 2003, Small Busi­ ness Finances survey staff will make a recommendation to the Board, issue a request for proposal, and award a contract. Field work will not begin until about April 2004.
The 2002–03 budget of $7.8 million for the Office of Inspector General (OIG) is separate from the Board’s. The OIG’s budget is prepared in a manner that is administratively consistent with the preparation of the Board’s operating budget. In conformance with the statutory independence of the office, the OIG pre­ sents its budget directly to the Chairman of the Board of Governors for consider­ ation by the Board.
The 2003 operating budgets of the twelve Reserve Banks total $2,629.9 million.1 The 2003 total is $54.5 million, or 2.1 percent, above estimated 2002 expenses (table 3.1).2 Reserve Banks developed their 2003 budgets by incorporating spending guidance provided by System business leaders. In large part because of poor cost recovery in the check service, business leaders have set aggressive spending targets for most functions. The Monetary Control Act provides that “the Board shall require reductions in the operating budgets of the Federal Reserve banks commensurate with any actual or projected decline in the volume of ser­ vices to be provided by such banks.” The Banks’ 2002 estimate and 2003 budget plans reflect, in part, the spending restraint necessary to improve cost /rev­ enue performance in the check service. Because of Reserve Banks’ adherence to specific targets for direct costs in the check service and to guidance from busi­ ness leaders concerning most of the related support and overhead functions, the 2003 budget reflects lower checkservice costs. Targets established for the 2003 budget, however, were not limited to areas affecting the check service. The supervision and regulation and cash func­ tions also established budget targets. Approximately 48 percent of Reserve Bank expenses in the 2003 budget are
1. These expenses include those budgeted by Federal Reserve Information Technology (FRIT) and the Office of Employee Benefits (OEB). Expenses from these entities have been charged to the Reserve Banks, as appropriate, and included in their budgets. 2. Unless otherwise noted, expenses also include costs associated with the checkstandardization special project. Special projects are major efforts having Systemwide significance that are outside the budgets of the individual Reserve Banks.
Table 3.1 Expenses of the Federal Reserve Banks, Net of Receipts and Claims for Reimbursement, 2002 and 2003
Millions of dollars except as noted Item Operations ........................................................................... LESS Revenue from priced services ......................................... Other income ................................................................... Claims for reimbursement 1 ............................................. EQUALS Net expenses .................................................................. NOTE. Excludes capital outlays. Includes expenses budgeted by Federal Reserve Information Technology (FRIT) and the System’s Office of Employee Benefits (OEB). Expenses from these entities have been charged to the Reserve Banks, as appropriate, and included in their budgets. Componenets may not sum to totals and may not yield percentages shown because of rounding. 2002 (estimated) 2,575.4 2003 (budgeted) 2,629.9 Change Amount 54.5 Percent 2.1
16.2 –0.2 12.6
Operating expenses reflect all redistributions for sup­ port and allocations for overhead. 1. Costs of fiscal agency and depository services provided ot the U.S. Treasury and other government agencies that are billed to these agencies.
offset by priced-service revenues (35 percent) and reimbursable claims for services provided to the U.S. Treasury and other agencies (13 percent). Although budgeted 2003 revenue is up slightly from esti­ mated 2002 levels, it is still significantly below the 2002 budgeted level, reflect­ ing declines in check volume. Reimburs­ able claims are expected to increase 4.0 percent, reflecting higher costs for Treasury-requested projects partially offset by efficiency measures and lower allocated costs from support and overhead functions. The Reserve Banks’ 2003 budgeted net operating expenses are $1,374.4 million, 1.9 percent higher than the 2002 estimate. The moderate increase reflects efforts by all Banks to reduce costs, to improve priced-services performance, and to meet System targets established by national business leaders. Banks have been able to limit overall cost increases through plans to self-fund many new initiatives, implement productivity and efficiency measures, and continue consolidating functions at a regional or national level. The average number of personnel (ANP) projected to be employed at the Reserve Banks, Federal Reserve Informa­ tion Technology (FRIT), and the Office of Employee Benefits (OEB) during 2003 is 22,422, a decrease of 743 ANP, or 3.2 percent, from 2002 estimated staff levels
(table 3.2).3 Although all Districts are planning to reduce staffing in 2003, three Banks—New York, Atlanta, and San Francisco—account for slightly more than half of the overall reductions. As a result of declining volumes and efforts to improve productivity, all Banks are reducing staff in the check service. Sev­ eral Banks will also reduce check staff after making the transition to the stan­ dardized check-processing platform. The remainder of the reduction is the net effect of several System and District efforts to meet System cost-reduction ini­ tiatives and improve operational efficien­ cies. For more detail on expenses and ANP by District and operational area, see appendix E, tables E.1 through E.4.
2002 Budget Performance
The Reserve Banks estimate 2002 expenses have been $2,575.4 million, a decrease of $4.8 million, or 0.2 percent, from the approved 2002 budget of $2,580.2. The 2002 estimate is $116.1
Employment at the Federal Reserve Banks, FRIT, and OEB, 2002 and 2003
Average number of personnel except as noted 2002 (estimated) 22,359 774 32 23,165 2003 (budgeted) 21,607 779 36 22,422 Change Amount –752 5 4 –743 Percent –3.4 0.6 12.5 –3.2
Reserve Banks ..................................................................... Federal Reserve Information Technology ........................... Office of Employee Benefits ............................................... Total .................................................................................... NOTE . Components may not sum to totals and may not yield percentages shown because of rounding. See text note 3 for definition of average number of personnel.
Federal Reserve Banks Table 3.3 Budget Performance of the Federal Reserve Banks, Operating Expenses and Employment, 2002
2002 (budgeted) 2002 (estimated) Change Amount Percent
Operating Expenses (millions of dollars) ..................................................... Employment (average number of personnel) ................................... NOTE . Excludes capital outlays. Includes expenses budgeted by Federal Reserve Information Technology (FRIT) and the System’s Office of Employee Benefits (OEB). Expenses from these entities have been charged to the Reserve Banks, as appropriate, and included in their budgets. Componenets may not sum to totals and may not yield percentages shown because of rounding.
2,580.2 23,550
2,575.4 23,165
–4.8 –385
–0.2 –1.6
Operating expenses reflect all redistributions for support and allocations for overhead. See text note 3 for definition of average number of personnel.
million above the 2001 actual expense of $2,459.3 million. The Banks estimate ANP at 23,165, a decrease of 385 ANP, or 1.6 percent, from approved 2002 budget levels and 54 ANP below 2001 actual levels. Most Bank estimates include targeted staff reductions and realignment of resources due to volume declines in the check service. Check expenses and staff­ ing are declining at nine Banks as resources are aligned to the lower vol­ ume projections, resulting in an underrun of $10.0 million and 241 ANP from the 2002 budget. Support and overhead costs, primarily in Information Technology (IT), are declining by a total of $9.3 million, largely as a result of staff reductions and lower depreciation expense. The 2002 estimate also reflects reductions in cash operations totaling $6.5 million from the 2002 budget, resulting primarily from lower staffing-related costs due to lessthan-anticipated volume growth in sev­ eral Districts, productivity improvements, and delayed implementation of equipment upgrades. Offsetting some of the decreases are increasing expenses in other areas, includ­ ing two large, one-time expenses. The Customer Relations and Support Office in Chicago incurred an $8.6 million
expense as a result of canceling the FedLine for Windows project. Also, esti­ mated 2002 severance payments are $16.9 million, $13.7 million higher than budgeted. Excluding these expenses, the 2002 estimate would be approximately $27 million lower than the approved 2002 budget.4 In addition to these one-time expenses, the estimate includes slightlyhigher-than-anticipated costs in several Districts for check-standardization imple­ mentation and fully reimbursable Trea­ sury projects.5
Efforts to reduce spending in 2002 have positioned the Banks to develop 2003 budgets consistent with guidance pro­ vided by the System business leaders during the budget outlook process. This guidance has not only assisted Reserve Banks in developing their 2003 budgets
4. Excluding these one-time costs, the 2003 budget would reflect an increase of about $77 million, or 3.0 percent, from the adjusted 2002 estimate. 5. Although projected to be over budget in 2002, overall costs for the check-standardization project are still expected to be under budget for the life of the project.
and multiyear business plans but has also provided them with a management tool to better monitor direct-spending plans. Overall, Reserve Banks have met or exceeded the aggressive-business-leader guidance established earlier this year. Adherence to the guidance, in conjunc­ tion with other cost-reduction initia­ tives, helps the System address the costrecovery pressures in the check service while enabling the Banks to fund other high-priority initiatives.
Initiatives Affecting the 2003 Budget
The 2003 budget provides funding for several System and Reserve Bank initia­ tives. The budgetary requirements for these initiatives are described below. Check Modernization Perhaps the single biggest factor influenc­ ing 2003 expense and staffing levels is the Banks’ effort to address the shortfalls in check-cost recovery while managing the completion of the checkmodernization projects. Check modern­ ization encompasses four projects: check standardization, enterprisewide adjust­ ments (EWA), FedImage, and check elec­ tronic access and delivery. Check stan­ dardization involves standardizing Reserve Bank item processing on a single platform and software suite, and central­ ized application software support. EWA provides a common, standard platform for check-adjustments processing throughout the System, which in the long term will improve efficiency and eliminate dupli­ cate support. FedImage (formerly know as Image Services System) integrates current image production from nonstandard hardware and software platforms into a consistent production environment for the capture and archiving of check images. Check electronic access and delivery
migrates the check service to the new web-based platform for accessing check products. In the 2003 budgets, these projects account for a $16.6 million increase over estimated 2002 expenses. According to the transition schedule, all Banks should be using the standard check-processing platform by year-end 2003. This stan­ dardization will allow Banks to gain effi­ ciencies and reduce expenses associated with additional staff retained through conversions to ensure a smooth transition. These savings alone, however, are not enough to address the challenges pre­ sented by lower volume projections, changes in deposit mix, and correspond­ ing revenue shortfalls. The Banks are taking steps to address these cost and revenue challenges. Banks that have completed the transition to check standardization and EWA have begun to capitalize on the efficiencies gained in the forward and adjustment pro­ cessing environments. These savings are reflected in the check-service costs, which are $17.2 million, or 2.2 percent, less than 2002 estimated expenses. In the 2003 budget, staffing for check service is 568 ANP below 2001 actual levels. The overall reduction in check costs is the result of Reserve Banks’ efforts to reduce direct costs and restrain support and overhead spending. Because charges from support and overhead account for about 30 percent of check-service costs, cost reductions in these areas are a nec­ essary, though alone not sufficient, fac­ tor in achieving check spending targets. Much as the accounting area was pro­ vided with cost-reduction guidance over the last five years, each of the major support and overhead areas was given spe­ cific spending guidance for 2003. In aggregate, these areas have reduced ex­ penses by $18.5 million and 504 ANP. For most support services, expense growth is projected to be 2 percent or less, with the majority achieving budgeted
expenses below the estimated 2002 levels. Information Technology The most significant cost reductions are in the area of information technology (IT). These reductions reflect the multiyear targeted-reduction initiative estab­ lished by the Reserve Banks to reduce local IT costs from the 2001 budget by $65 million.6 Several efficiency ini­ tiatives are underway, including the e-mail server administration and manage­ ment centralization project, standardiza­ tion of desktop PC software application and hardware configurations, and imple­ mentation of Active Directory.7 FRIT also has efforts underway to use its resources more effectively, for example, by improv­ ing the efficiency of its mainframe pro­ cessing environment. Budgeted IT costs for 2003 are $30.1 million below the 2001 budgeted levels. The IT cost-reduction target was designed to be an ambitious goal support­ ing the reengineering of Reserve Banks’ provision of IT services. Reserve Banks recently have recognized that it is unlikely that the multiyear target will be achieved, in part because of delays in the desktopstandardization initiative and further study of a server-management initiative. They do believe, however, that the target has fostered opportunities to streamline and consolidate operations. In the 2003 budget, local IT staffing has decreased 154 ANP from the 2002 estimate. About half of the local IT staff reductions have been redirected to support initiatives in several of the nationally provided support services.
6. The IT multiyear target excludes support for Treasury initiatives, check-modernization projects, and economic research. 7. The Active Directory project is a central­ ized and standardized system that automates network management of user data, security, and dis­ tributed resources, enabling interoperability with other directories.
Electronic Access Customer Support The Customer Relations and Support Office plans to consolidate the electronic access customer support function at two offices. Although project costs are expected to total $8.6 million in the 2003 budget, these costs are expected to be more than offset by savings at the other ten Banks over the next three years. Treasury-Related Functions The growth of 5.6 percent in Treasuryrelated functions is due to higher FRIT costs for Treasury Web Applications Infrastructure (TWAI) and Treasury Account Management Information (TAMI) system ($15.8 million). TWAI involves developing a network to support the Treasury applications that will con­ nect customers and other businesses through the web. TAMI will also use webbased technology to improve reporting and reconcilement of Treasury account information. This increase is partially offset by reduced costs from the support and overhead areas, along with the savings that have been achieved through effi­ ciency measures, such as the consolida­ tion of Treasury check processing sites, from eight to four during 2002. Supervision and Regulation Total expenses for the supervision and regulation function increase $31.8 million, or 6.7 percent, in the 2003 budget, primarily because of the growth in the number and asset size of state member banks and an increased need to closely monitor large regional institutions in sev­ eral Districts. The Reserve Banks have achieved efficiencies through increased use of risk-focused examinations and resource sharing among Reserve Banks, and have reduced travel costs through greater use of video conferencing. Systemwide, staffing levels remain flat, with a shift of personnel from foreign and
community bank work to multistate bank­ ing organizations. As with Treasury costs, growth in the supervision and regulation function would have been higher if not for the reductions in support and overhead costs. Cash Services The Cash Product Office also established budget guidance for the cash function as part of the budget process. Most Banks have budgeted to meet the guidance pri­ marily by increasing efficiencies and adjusting staffing levels to meet volume projections, which appear to be more stable after several years of substantial growth. Research During the budget guidance-setting pro­ cess, growth in the research area was estimated to be 4.7 percent based on a trend forecast. The research functions have budgeted an aggregate increase of 4.7 percent, with staffing expected to be seven ANP higher than the 2002 estimate.
2003 Salary Administration
The budgets for the Reserve Banks, FRIT, and OEB include $117.1 million to fund salary administration programs for offic­ ers and employees (appendix E, table E.5).8 The largest component of the sal­ ary programs is merit.9 The average merit increase is budgeted at 3.6 percent for officers and 3.5 percent for employees, totaling $43.2 million, or 41 percent of
8. Salary administration represents the bud­ geted funds that are available to increase compen­ sation to officers and employees in the coming year. It does not include adjustments for changes in staffing levels, turnover and lags in hiring, and overtime. 9. Salary program costs described in this sec­ tion include program expenses budgeted at the Reserve Banks, FRIT, and OEB.
the total salary administration budget. The other programs that affect base salaries— promotions, reclassifications, and market adjustments—total $13.5 million. Officer and employee cash awards and incentive payments represent about $36.6 million, or 34 percent, of salary program costs. Cash award and incentive payment programs are increasing $3.2 million compared with 2002 estimated spending. Retention and severance payments (programs designed to deliver one-time pay­ ments most often associated with reengineering and efficiency initiatives) total $2.1 million and $10.3 million, respectively. The 2003 budget reflects a decrease in funding from the 2002 esti­ mate for retention payments ($0.6 million) and for severance payments ($6.7 million). Officer incentive payments and cash awards total $11.3 million, or 7.1 percent of officer salary liability. Although the officer variable-pay threshold was set at 8.0 percent of salary liability for 2003, half of the Banks and FRIT did not fully fund officer incentive payments and cash awards. In 2003, ten Banks, FRIT, and OEB targeted more than half the officer variable-pay pool toward incentives. Employee incentive payments and cash awards total $25.3 million, or 2.3 percent of employee salary liability. The mix between incentive and cash awards in the employee category continues to be weighted toward cash awards (cash awards represent 1.3 percent of salary liability; incentives represent 1.0 percent). Officer turnover, including retirements, is projected to decrease from an estimated 5.3 percent in 2002 to 3.9 percent in 2003.10 Reserve Banks estimate, however, that approximately one-third of all offic­ ers will be eligible to retire by second quarter 2004. Average employee turnover is projected to remain flat at 11 percent. Reserve Banks believe that continuing
10. Turnover rates include voluntary and involuntary departures.
market pressures for critical skill sets will increase the risk of losing key employ­ ees. The Banks therefore plan to use vari­ able pay, retention incentives, and other monetary and nonmonetary rewards for key officers and employees. Retirement and other benefit expenses, which account for 14 percent of Reserve Bank budgets, are anticipated to increase by $21.8 million, or 6.1 percent, in 2003. The primary factors driving the high costs include increases in salary-related ben­ efits, such as Social Security and Thrift Plan contributions, which are directly related to an increase in salaries, and higher health care costs. The increases in employer contributions for health benefits average 19 percent for non-HMO plans, 8.9 percent for HMOs, and 11 percent for dental plans. The Reserve Banks’ new consolidated health care program has helped to moderate the increase in employer contributions.
improvements, information technology initiatives, and security enhancements.
The proposed capital budget includes an estimated $268.7 million for building projects. Of this total, 58 percent, or $156.8 million, is related to the planned new building projects in Detroit, Hous­ ton, Kansas City, and Seattle. The remain­ ing outlays in this category will fund vari­ ous other major building renovations, as well as miscellaneous facility-improve­ ment and energy-efficiency projects and acquisitions of contingency equipment.
The proposed capital budget includes $109.0 million for initiatives related to payment system improvement. Over 40 percent of these funds ($45.4 million) support reimbursable initiatives, includ­ ing the Treasury Web Applications Infra­ structure, Pay.gov, and Savings Bond Architecture projects. Outlays for the cash services area account for about onethird of the outlays. The 2003 budgets include funds for upgraded currencyprocessing equipment sensors ($19.0 million), cash inventory management sys­ tems, and Standard Cash Automation ini­ tiatives. Other outlays are associated with equipment and software needed in Dis­ tricts migrating to the standard checkprocessing software platform in 2003 ($15.9 million) and for FRIT’s Web Applications Infrastructure initiative ($3.3 million), which includes outlays for the Secure IP (Internet Protocol) project.
The 2003 capital budget submitted by the Reserve Banks and FRIT totals $491.4 million, a $160.6 million increase over the 2002 estimated levels. The budget includes $430.5 million for the Banks and $60.9 million for FRIT. The increase in 2003 outlays from the 2002 estimate is due largely to planned new building programs and various other buildingrenovation projects. Tables E.6 and E.7 in appendix E detail capital expenditures by District and by category. As in previous years, the 2003 capital budgets include funding for projects that support the strategic direction outlined in the Banks’ plans. These strategic goals include improving operational efficiency and effectiveness, improving services to Bank customers, and providing a safe, quality work environment. In support of these strategies, the 2003 budget identi­ fies four major categories of capital outlays: building projects, payment system
The proposed capital budget includes $55.0 million in funding for major infor­ mation technology initiatives. These ini­ tiatives do not include the automation components of building or payment sys-
tems initiatives that are discussed sepa­ rately. The strategic objectives outlined in the individual Bank budgets are direct­ ed toward achieving the System’s goal to increase the business value of System IT investments and to reduce technology costs. Of the total automation-related outlays, FRIT projects and acquisitions account for over half, or $30.9 million. The FRIT budget includes capital for the distributed processing, network, and mainframe environments, including a CPU replacement project and various software and hardware upgrades and enhancements. Aside from FRIT, the Dis­ tricts have budgeted to begin replacing
aging servers in compliance with the System’s server-management initiative ($6.9 million). Bank budgets also include outlays for various other local initiatives and for systems operated or developed on behalf of the System.
The proposed capital budget includes $49.2 million in funding for security enhancements. Almost all Districts have included capital spending for security measures necessary to enhance security at Reserve Bank facilities.
This appendix gives an overview of the separate budgets and budgeting processes followed by the Board of Governors and the Reserve Banks. The Federal Reserve System’s intent in the development and publication of this information is to provide the reader with the assumptions and initiatives considered when the Federal Reserve System budgets were developed and approved by the Board of Governors. basis of Boardwide priorities and plan­ ning assumptions. The Committee on Board Affairs reviews the plan and pre­ liminary budget objective, clarifies outstanding planning issues with the Staff Planning Group and division directors, and at the end of summer of oddnumbered years submits the budget objec­ tive to the Board for its consideration. The divisions use the budget objective approved by the Board to complete their budgeting under the approved plan. The Board’s Committee on Board Affairs, under authority delegated by the Chairman, oversees the process until the budget is submitted to the Board for action in the fall of the odd-numbered year. The Board of Governors budgets its resources by division and accounts for its activities by division and across opera­ tional areas. Direct costs, such as those for salary, retirement, insurance, and travel, are billed to the operational areas. Costs for data processing are also charged as a direct expense to each of the areas according to service-level agreements (at prices derived from the cost of resources needed to provide the services and agreed upon before the budget year starts). Expenses for other elements of support and overhead are distributed among the operational areas in proportion to the share of direct costs attributable to each area. The Board, in accordance with gener­ ally accepted accounting principles, capi­ talizes certain assets and depreciates their value over appropriate periods instead of expensing them in their year of purchase. Hence, the Board has both an operations budget and a capital budget. After the budget is approved by the Board, it is converted to an operating plan that allocates funding by month; the operating plan is also the vehicle for sub-
The Board’s budget covers a two-year period. The first year of the budget cycle—the even-numbered year—is used to update the strategic plan for the next four years, and the second year is used to develop the budget for the next two years. The two-year cycle begins in the fall (thus, for the 2004–05 budget, the fall of 2002). At that time, the Board’s divisions examine their operating environments and look for any adjustments to their priori­ ties, activities, and resources that might improve the efficiency and effectiveness of the Board’s operations. The management of each division dis­ cusses with the appropriate Board oversight committee the issues that result from its review. After any adjustment, the results are given to the Staff Planning Group, a small group of senior managers with a Boardwide perspective, for use in their analysis of the Board’s budget options. After consulting with the Board-level Committee on Board Affairs for final guidance, the Staff Planning Group updates the strategic plan, which is used to prepare a preliminary budget objective that identifies the level and allocation of resources needed to support the plan. As part of this process, individual division budget objectives are prepared on the
sequent adjustments within the budget. Also at this point, the cash requirement for the first half of the calendar year is estimated, and the amount is raised by an assessment on each of the Reserve Banks in proportion to its capital stock and sur­ plus. The cash requirement for the sec­ ond half of each year is estimated in June, and the second assessment is made in July. The Board accounts for extraordinary items separately from the operations budget so that unique, one-time requirements do not compete with regular operations and so that expenses in those operations can be readily compared across years without distortion. As discussed more fully in chapter 2, the extraordinary items budget for 2002–03 consists of funds to support planning for two periodic sur­ veys, one on consumer finances and the other on small business finances. The Board’s Office of Inspector Gen­ eral (OIG), in keeping with its statutory independence, prepares its proposed budget apart from the Board’s budget. The OIG presents its two-year budget directly to the Chairman for action by the Board, also in the fall.
Each year the Federal Reserve Banks establish major operating goals for the coming year, devise strategies to attain those goals, estimate required resources, and monitor results. The process begins with development of budget guidance by the business leaders in each functional area. This information is used to develop a preliminary budget projection, the Reserve Bank Budget Outlook (RBBO).
Each Bank then develops its own budget using the business-leader guidance. The budgets are reviewed at the Board by a committee of governors—the Committee on Federal Reserve Bank Affairs—both individually and in the context of Systemwide issues and the plans of the other Banks. The budgets are then pre­ sented to the full Board of Governors for final action in December. The Banks’ budgets are structured in operational areas, with support and overhead charged to these areas. As is the case with the Board, the Banks, in accordance with generally accepted accounting principles, capital­ ize certain assets and depreciate their value over appropriate periods instead of expensing them in the year of purchase. Hence, the Banks have a capital budget in addition to an operating budget. The Banks budget annually for capital outlays by capital class to estimate the effect of total operating and capital spend­ ing. During the budget year, the Banks must submit proposals for major pur­ chases of assets to the Board for further review and approval. The operations and financial perfor­ mance of the Reserve Banks are moni­ tored throughout the year via a costaccounting system, the Planning and Control System (PACS). Under PACS, the costs of all Reserve Bank services, both priced and nonpriced, are grouped by operational area, and the costs of support and overhead are charged to these areas. PACS makes it possible to com­ pare budgets with actual expenses and facilitates comparison of the financial and operating performances of the Reserve Banks.
The Monetary Control Act of 1980 requires the Federal Reserve to charge depository institutions for certain services that the Federal Reserve had previously provided without explicit charge and only to member banks. As the act requires, the fees charged for providing these priced services are fees set to recover, over the long run, all direct and indirect costs of providing the services plus imputed costs, including the interest on items credited before actual collection (float), and the private-sector adjustment factor (PSAF). The intent of the PSAF calculation is to impute the costs that would have been incurred, such as taxes that would have been paid; and the profits that would have been earned, such as the return on capi­ tal, had the Federal Reserve Banks’ priced services been provided by a private firm. Table B.1 provides details on projected revenue from priced services. developed an annual pricing process involving projections of Reserve Bank expenses, volumes, and revenues, as well as the PSAF and net income on clearing balances, for each major service category. Fees for Federal Reserve services must be approved by the product director for the respective service, by the Financial Services Policy Committee, and ulti­ mately by the Board of Governors.1 The cost of float is estimated by applying the current federal funds rate to the level of float expected to be gener­ ated in the coming year. Estimates of income taxes and the return on capital are based on tax and financing rates derived using a model of the fifty largest U.S. bank holding companies. These rates are applied to the assets the Federal Reserve expects to use in providing priced ser­ vices in the coming year.2 The other com­ ponents of the PSAF are derived from the budgets of the Reserve Banks and the Board: the imputed sales tax (based on budgeted outlays for materials, supplies, and capital assets); the imputed assess­ ment for insurance by the Federal Deposit
1. The product directors are the first vice presi­ dents at selected Reserve Banks with responsibil­ ity for day-to-day policy guidance over specific services. The Financial Services Policy Committee (FSPC) is responsible for the overall direction of financial services and related support functions for the Federal Reserve Banks. 2. Beginning in 2002, a portion of depository institution clearing balances held with the Federal Reserve for processing transactions will be used as a funding source for priced-service assets. Equity will be imputed at 5 percent of total assets to meet the FDIC definition of a well-capitalized institution in its classification for assessing insur­ ance premiums. The equity financing rate, or pretax return on equity, will be based on the average of the return-on-equity results of three eco­ nomic models using data from the bank holding company model.
To meet the requirement for the full recovery of costs, the Federal Reserve has
Table B.1 Revenue from Priced Services, 2001–2003
Millions of dollars Service 2001 2002 (estimated) 2003 (bud­ geted)
63.8 79.4 793.2 19.7 2.0 2.3 960.4
56.0 70.8 757.9 22.0 1.6 1.4 909.6
51.9 69.9 781.0 20.6 1.9 0.4 925.8
Insurance Corporation (FDIC) (based on expected clearing balances and amounts deferred to depository institutions for items deposited for collection with the Reserve Banks); and the portion of the expenses of the Board of Governors directly related to providing priced services.
Federal Reserve Banks circulate new and fit currency through depository institu­ tions and destroy currency already in cir­ culation as it becomes unfit or when a new design is issued. Each year, under author­ ity delegated by the Board, the director of the Division of Reserve Bank Opera­ tions and Payment Systems orders new currency from the U.S. Department of Treasury’s Bureau of Engraving and Printing (BEP). Upon reviewing the order, the BEP sets billing rates for new currency, which Board staff uses to prepare the annual budget for new currency. Once the Board approves the new cur­ rency budget, it assesses each Federal Reserve Bank through an accounting pro­ cedure similar to that used in assessing the Banks for the Board’s operating expenses. Estimated currency expenditures for 2002 totaled $430.5 million, which is $17.0 million, or 4.1 percent, more than budgeted (table C.1). The overrun result­ ed primarily from an increase in the print order and increased currency transporta­ tion costs. Budgeted currency expendi­ tures for 2003 total $510.3 million, or 18.5 percent more than estimated 2002 expenses (chart C.1). The increase is pri­ marily the result of a significant increase in the billing rate for the new $20 note
Table C.1 Federal Reserve Budget for New Currency, 2002 and 2003
Thousands of dollars except as noted Item Printing of new Federal Resereve notes ...................................................... Currency transportation ............................................................................... Counterfeit-deterrence research ................................................................... Reimbursement to the U.S. Treasury’s Office of Currency Standards ....... Total cost of currency ................................................................................ 2002 (estimated) 411,391 12,902 2,662 3,506 430,461 2003 (budgeted) 490,891 13,740 2,862 2,790 510,283 Percentage change 19.3 6.5 7.5 -20.4 18.5
Chart C.1 Federal Reserve Budget for New Currency, 1994–2003
N OTE . For 2002, estimated; for 2003, budgeted
design and an increase in the cost of transporting new currency from the BEP to Reserve Bank offices.
The Board ordered 8.2 billion new notes for the calendar year 2003 budget. The budget for printing the Board’s order is $490.9 million, or 96.2 percent of the total 2003 new currency budget. For January through September 2003 (the portion of the federal government’s 2003 fiscal year that falls within the 2003 calendar year), the BEP will produce
Table C.2 Projected Federal Reserve Costs of Printing New Notes, by Type of Note, 2003
Type of currency Number of notes (millions) 3,975.0 Percentage of total notes 48.4 Cost per thousand notes (dollars) 39.98 Total cost (thousands of dollars) 158,921
Unthreaded ($1s) ..................................... New Currency Design ($5S) ..................................................... ($10s, $20s, $50s, $100s) .................... Series-2004 ($20) .................................... Average cost ............................................. Total .........................................................
521.9 2,160.2 1,560.5
6.3 26.3 19.0
57.00 68.75 98.50 58.25
29,748 148,516 153,706
6.3 billion notes; for October through December 2003 (the remainder of the 2003 calendar year), it will produce another 1.9 billion notes. The 2003 billing rates reflect four types of currency: unthreaded ($1s), New Currency Design (NCD) without colorshifting ink ($5s), NCD with colorshifting ink 1 ($10s, $20s, $50s, and $100s), and Series-2004 with new and enhanced security features ($20s) (table C.2). During 2003, 33 percent of the notes produced will be NCD notes, 19 percent will be Series-2004 ($20s), and the remaining 48 percent will be unthreaded ($1s). The average price that the Board will pay the BEP for producing notes in 2003 is $58.25 per thousand.
greater than estimated 2002 expenses because of a projected increase in the cost of air shipment. The 2003 budget for cur­ rency shipments among Reserve Banks is $5.3 million, which is unchanged from estimated 2002 expenses. These ship­ ments move currency from Reserve Bank offices with excess fit currency to offices that would otherwise require new cur­ rency from the BEP.
The 2003 budget for the counterfeitdeterrence program is $2.9 million. The funds will support the Federal Reserve System’s participation in the Central Bank Counterfeit Deterrence Group (formerly known as the SSG-2), which operates under the auspices of the G-10 governors to combat digital counterfeiting.
The currency transportation budget con­ sists of funds for shipping new currency from the BEP and among the Reserve Banks. The 2003 currency transportation budget is $13.7 million, which is $838 thousand, or 6.5 percent, more than the Board estimated for 2002. The 2003 budget for new currency shipments from the BEP is $8.4 million, or 11.1 percent,
1. The color of the color-shifting ink shifts from green to black as the viewing angle of the note changes.
The 2003 budget is $2.8 million to reim­ burse the Treasury for Office of Currency Standards (OCS) expenses. The OCS develops standards for the cancellation, destruction, and accountability of unfit currency and processes claims for the redemption of damaged or mutilated currency.
Table D.1 Operating Expenses of the Board of Governors, by Division, Office or Special Account,
Average annual percent change Division, office or special account 2000–01 (budgeted) 2000–01 (actuals) 2002–03 (revised budget) 2002–03 2000–01 revised actuals budget compared compared with 2000–01 with 2000–01 budgeted actuals -4.0 -2.1 -0.3 -2.7 -1.1 -2.0 -0.9 0.1 -3.5 -1.7 -2.6 1.1 -0.7 -4.3 23.6 0.0 -0.5 3.4 -2.3 19.3 11.9 3.7 6.2 2.2 10.1 7.9 7.1 9.2 34.5 8.2 11.9 6.7 7.3 29.0 5.2 9.6 -57.7 10.8
Board Members ............................................ Secretary ....................................................... Research and Statistics ................................ International Finance .................................... Monetary Affairs .......................................... Banking Supervision and Regulation ........... Consumer and Community Affairs .............. Legal ............................................................. Reserve Bank Operations and Payment Systems .......................... Staff Director for Management .................... Management ................................................. Support Services .......................................... Information Technology ............................... Publications Committee ............................... Special projects ............................................ IRM income account 1 ................................... Total, Board operations ............................. Extraordinary items ...................................... Office of the Inspector General ...................
9,002 9,376 63,080 23,308 19,238 63,511 18,099 18,045 31,988 4,060 22,755 58,371 72,906 3,497 11,442 (37,483) 391,198 7,847 6,617
8,300 8,983 62,640 22,055 18,819 60,951 17,759 18,079 29,801 3,920 21,581 59,692 71,883 3,205 17,481 (37,489) 387,660 8,392 6,322
11,813 11,256 67,382 24,873 19,666 73,859 20,671 20,754 35,548 7,097 25,248 74,684 81,855 3,687 29,073 (41,477) 465,988 1,500 7,757
1. Income from various Board divisions for use of cen­ tral information resources management (IRM) resources.
Table D.2 Positions Authorized at the Board of Governors, by Division, Office, or Special Account, 2000–03
Division, office, or special account Board Members ........................................................ Secretary ................................................................... Staff Director for Management ................................ Research and Statistics ............................................ International Finance ................................................ Monetary Affairs ...................................................... Banking Supervision and Regulation ....................... Consumer and Community Affairs .......................... Legal ......................................................................... Reserve Bank Operations and Payment Systems ...................................... Management ............................................................. Concern 1 .............................................................. Support Services ...................................................... Information Technology 2 .......................................... Special projects ........................................................ Subtotal ................................................................... Reimbursable IT support 2 ........................................ Total, Board operations ......................................... Office of Inspector General ..................................... 1. Summer intern and youth positions handled by the Management Division. 2. Positions in the Division of Information Technology that provide support to the Federal Financial Institu­ 2000–01 (authorized) 54 56 25 279 119 62 227 78 82 129 88 31 204 284 2 1,720 25 1,745 29 2002–03 (revised budget) 49 55 37 278 120 69 229 82 82 138 90 31 312 283 2 1,857 27 1,884 29 Change –5 –1 12 –1 1 7 2 4 ... 9 2 ... 108 –1 ... 137 2 139 ...
tions Examination Council for processing data collected under the Home Mortgage Disclosure Act and the Community Reinvestment Act. . . . Not applicable.
Expenses and Employment Table D.3 Operating Expenses of the Board of Governors, by Account Classification,
Average annual percent change Division, office or special account 2000–01 (budgeted) 2000–01 (actuals) 2002–03 (revised budget)
2002–03 2000–01 revised actuals budget compared compared with 2000–01 with 2000–01 budgeted actuals
Personnel services Salaries ......................................................... Retirement .................................................... Insurance ...................................................... Subtotal .................................................... Goods and services Travel ............................................................ Postage and shipping ................................... Telecommunications ..................................... Printing and binding ..................................... Publications .................................................. Stationery and supplies ................................ Software ....................................................... Furniture and equipment .............................. Rentals .......................................................... Books and subscriptions .............................. Utilities ......................................................... Building repairs and alterations ................... Furniture reapirs and maintenance ............... Contingency Processing Center ................... Contractual professional services ................ Tuition, registration, and membership fees . Subsidies and contributions ......................... Depreciation ................................................. Other ............................................................. Subtotal .................................................... Total, Board operations ............................. Extraordinary items ...................................... Office of the Inspector General ...................
246,502 21,533 19,559 287,595
242,516 22,408 19,004 283,928
292,902 27,808 24,001 344,711
–0.8 2.0 –1.4 –0.6
9.9 11. 12.4 10.2
11,537 1,659 6,599 2,549 2,297 1,936 9,967 8,125 10,296 2,088 4,457 3,578 4,263 ... 28,347 3,270 1,809 18,842 (18,015) 103,603 391,198 7,847 6,617
10,627 1,726 7,293 2,338 1,805 2,429 9,547 7,463 8,869 1,951 4,564 3,673 3,860 457 26,875 2,805 1,688 18,855 (13,093) 103,732 387,660 8,392 6,322
13,606 1,607 7,798 2,543 2,066 2,546 11,223 7,128 857 2,120 5,555 3,688 7,124 400 35,984 3,741 1,897 25,482 (14,089) 121,277 465,988 1,500 7,757
–4.0 2.0 5.1 –4.2 –11.4 12.0 –2.1 –4.2 –7.2 –3.4 1.2 1.3 –4.8 ... –2.6 –7.4 –3.4 0.0 –14.7 0.1 –0.5 3.4 –2.3
13.2 –3.5 3.4 4.3 7.0 2.4 8.4 –2.3 –68.9 4.3 10.3 0.2 35.9 –6.4 15.7 15.5 6.0 16.3 3.7 8.1 9.6 –57.7 10.8
Table E.1 Operating Expenses of the Federal Reserve Banks, by District, 2002 and 2003
Thousands of dollars except as noted Percent change District 2002 (budgeted) 2002 (estimated) 2003 (budgeted) 2002 estimated compared with 2002 budgeted 2.2 –2.1 –2.0 –0.9 3.3 –2.3 3.7 0.0 –2.2 –0.3 0.7 –0.9 –0.3 2003 budgeted compared with 2002 estimated 5.1 –0.2 3.6 6.3 0.1 2.0 –2.5 10.7 3.9 3.2 6.5 –0.3 2.1
155,701 508,994 125,751 138,766 198,829 298,857 244,842 139,348 145,083 170,040 151,614 290,009 2,567,834
159,186 498,229 123,265 137,568 205,410 292,010 253,911 139,415 141,852 169,611 152,658 287,383 2,560,498
167,228 497,362 127,758 146,181 205,593 297,992 247,443 154,319 147,318 174,960 162,630 286,523 2,615,309
12,387 2,580,220
14,890 2,575,388
14,627 2,629,936
20.2 –0.2
N OTE . Excludes capital outlays. Includes expenses budgeted by Federal Reserve Information Technology (FRIT) and the System’s Office of Employee Benefits (OEB).
Table E.2 Employment at the Federal Reserve Banks, by District, and at FRIT and OEB, 2002 and 2003
Average number of personnel except as noted Amount change District 2002 (budgeted) 2002 (estimated) 2003 (budgeted) 2002 estimated 2003 budgeted compared with compared with 2002 budgeted 2002 estimated –14 –32 –33 –48 –47 –33 –38 –32 –15 –21 –5 –77 –394 –57 –167 –24 –5 –41 –113 –69 –13 32 –48 –80 –167 –752
1,341 3,383 1,298 1,402 2,173 2,463 2,160 1,355 1,306 1,769 1,531 2,572 22,753
1,327 3,351 1,265 1,354 2,126 2,430 2,122 1,323 1,291 1,749 1,526 2,495 22,359
763 34 23,550
774 32 23,165
11 –2 –385
5 4 –743
Table E.3 Operating Expenses of the Federal Reserve Banks, by Operational Area, 2002 and 2003
Thousands of dollars except as noted Percent change Operational area 2002 (budgeted) 2002 (estimated) 2003 (budgeted) 2002 estimated 2003 budgeted compared with compared with 2002 budgeted 2002 estimated 1.3 3.0 –1.3 –0.7 –0.8 –0.3 4.7 5.6 4.8 6.7 –3.7 2.1
242,938 284,116 626,783 474,993 939,004 2,567,834
246,002 292,711 618,738 471,858 931,189 2,560,498
257,610 309,026 648,554 503,665 896,453 2,615,309
NOTE . Operational expenses include FRIT and OEB and exclude special-project costs.
Expenses and Employment Table E.4 Employment at the Federal Reserve Banks, by Operational Area, 2002 and 2003
Average number of personnel except as noted Amount change Operational area 2002 (budgeted) 2002 (estimated) 2003 (budgeted)
2002 estimated 2003 budgeted compared with compared with 2002 budgeted 2002 estimated 8 –21 –27 –10 –237 –107 –394 7 –40 –31 –9 –383 –296 –752
850 1,334 2,916 2,607 5,402 9,644 22,753
858 1,313 2,888 2,597 5,165 9,537 22,359
865 1,273 2,858 2,588 4,782 9,241 21,607
N OTE. Operational area employment excludes FRIT, OEB, and special-project average number of personnel.
Table E.5 Salary Administration Expenses of the Federal Resereve Banks, by District, and of FRIT and OEB, for Officers and Employees, 2003
Thousands of dollars except as noted Variable pay Salary base District Merit Promo­ Market Cash Incentive Percent tions and adjust­ Percent reclassifi­ ments (subtotal) awards payments (subtotal) cations 552 1,845 338 448 1,170 1,513 750 544 366 1,679 246 264 9,713 488 1,095 192 544 283 340 135 15 0 192 23 113 3,419 4.5 4.7 3.9 4.8 4.2 4.8 4.2 4.1 3.9 5.5 3.3 2.4 4.2 –74 –175 20 90 318 392 –353 –111 225 147 300 –560 219 –272 1,102 352 170 104 250 373 388 59 313 70 – 319 2,589 –0.4 0.4 0.5 0.4 0.4 0.5 0.0 0.4 0.4 0.5 0.5 –0.6 0.2 3,334 13,003 3,042 3,631 5,237 6,642 5,319 3,061 3,028 5,540 2,797 2,607 57,240 (2002 estimated minus 2003 budgeted) Total
2,640 9,136 2,140 2,379 3,362 4,148 4,415 2,225 2,379 3,209 2,158 3,109
4.1 5.0 4.5 5.1 4.6 5.3 4.2 4.5 4.3 6.0 3.8 1.8 4.4
Total, all Districts .... 41,299 Federal Reserve Information Technology ........ Office of Employee Benefits .............
1,704 187
329 0 10,042
0 18 3,438
383 5 2,977
2,435 216 59,891
3.8 5.9 4.4
Total .......................... 43,189
Expenses and Employment Table E.6 Capital Outlays of the Federal Resereve Banks, by District, and of FRIT and OEB, 2002 and 2003
Thousands of dollars except as noted Percent change District 2002 (budgeted) 2002 (estimated) 2003 (budgeted)
2002 estimated 2003 budgeted compared with compared with 2002 budgeted 2002 estimated –32.1 –25.1 –4.8 13.4 –24.5 –29.8 –16.4 –45.4 79.0 –36.0 –7.5 –25.2 –19.2 90.3 13.0 –15.0 –16.4 –15.0 10.3 95.7 248.2 –52.0 218.1 227.4 65.5 57.5
19,282 66,718 19,513 22,781 27,284 26,877 54,634 19,312 7,374 19,264 18,579 36,673 338,291
13,088 49,964 18,587 25,842 20,610 18,866 45,698 10,542 13,195 12,338 17,188 27,414 273,331
24,909 56,454 15,804 21,609 17,522 20,809 89,437 36,709 6,330 39,251 56,271 45,383 430,489
33,511 ... 371,802
54,021 3,439 330,791
61.2 ... –11.0
12.7 ... 48.5
Table E.7 Capital Outlays of the Federal Resereve Banks, by Category, 2002 and 2003
Thousands of dollars except as noted Percent change Category 2002 (budgeted) 1 2002 (estimated) 2003 (budgeted) 2002 estimated 2003 budgeted compared with compared with 2002 budgeted 2002 estimated ... ... ... ... ... ... 173.5 5.7 –13.4 8.6 –57.3 48.5
Building projects ............................... Security enhancements ...................... Information technology projects ....... Payment system projects ................... Miscellaneous 2 .................................. Total ..................................................
98,219 46,562 63,510 100,379 22,121 330,791
268,678 49,213 55,003 109,020 9,444 491,358
NOTE . Includes outlays from FRIT and OEB. 1. Capital information by category was not collected in the 2002 budget.
2. Includes other equipment purchases.
Bank serves the Commonwealth of Puerto Rico and the U.S. Virgin Islands; the San Francisco Bank serves American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. The maps show the boundaries within the System as of year-end 2002.
FRB1/1–800–0302–C
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