Regional President Speech

"The Perfect Storm" Cathy E. Minehan President and Chief Executive Officer Federal Reserve Bank of Boston Preamble to the Federal Reserve Act signed December 13, 1913 "To furnish an elastic currency, to afford a means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States ... " 1 Daily Averagefor 20()2 Volume Value (000) Funds Transfer 458 1.6 trillion Securities Transfer 70 912 million ACH 23,400 63.1 million Check 68,750 61.9 million Total 92,678 2.7 trillion 1913-1950 1960's Formation of RCPC's 1970's ACH "The Checkless Society" 1980's Monetary Control Act 1990's 2 Among other things: • Provided access to FR payment services to all depository institutions, whether members or not • Reduced reserve requirements • Payment services must be priced in a way that is competitive with the private sector Initial Results • Check volumes at Reserve Banks drop initially • Banks meet challenge of "cost-recovery" by 1984 Longer-term Results • Full cost-recovery from 1984 - 2000 3 1973 14,709 commercial and savings banks 35% of total assets held by top 25 2002 8,369 commercial and savings banks 60% of total assets held by top 2 5 • All have capability to operate nationally Projected Vs. Actual Volumes (in billions) ,-------.---------.-----.-.------.----.---,---,----,----,--------,- 80 80 l----l----l--------1----1------+---+-+---+--~-:i:.-::.~1::.-::.~ 70 70 ~ ~ l---+--+---1-+-----+----+-+----,.,...i,::....--+-+---+ 60 ,,, ~ ~ r--t--,1-t;;;;t--""'"'5::::;:;:~::t----t-t---t C ~ = ~ 50 ~~ s ~s ! J:--.-------l----l--------1----1------+---+-+---+----+--+-----+30 0 l---+--+---1-+-----+----+-+-----+---+-+----+20 > 4 • Check volumes have been declining since the mid-1990' s • Growth in number of electronic payments has accelerated • In 2000, checks still accounted for 85% of value of retail transactions 5 Scenarios (liquidation to leading) discussed at 52 National and Regional Forums Two conclusions: • Federal Reserve remains a provider of both check and ACH services with explicit goal of "enhancing the efficiency, effectiveness and convenience and of both systems, while ensuring access for all depository institutions." • The Federal R~e sheuld play a mOJ.'e 5 • Allows ( does not require) banks to change the way they process checks • Requires banks to accept replacement check created from digital images • Takes the costs out of the middle of the check collection process check -+, digitized image created-+, P-resentment made l - written using electronics physical check stored - with replacement checks 6 Costs Revenues Recession and stock -$100m market decline Check modernization +$300m Check volume decline -$ 60m I. Get out of the business - Large operation - not so easy to do - Political implications IL Downsize - 13 offices to close operations in 2004 - Focused effort to cut costs - Likely won 't be enough 7 III. Legislative Relief - Payment System would be harmed without Federal Reserve in check - Full costs would hurt small banks - Agree to get out by date: until then manage costs and revenue without requirement to match What do you think? 8

Cathy E. Minehan (2003, November 16). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_20031117_cathy_e_minehan

@misc{wtfs_regional_speeche_20031117_cathy_e_minehan,
  author = {Cathy E. Minehan},
  title = {Regional President Speech},
  year = {2003},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_20031117_cathy_e_minehan},
  note = {Retrieved via When the Fed Speaks corpus}
}