October 29, 2003
To: All Member Banks and Others Concerned in the Third Federal Reserve District
Attention: Chief Executive Officer and Chief Financial Officer
Subject: FEDERAL RESERVE BANK SERVICES - IMPUTED INVESTMENT INCOME ON CLEARING BALANCES
The Board of Governors
of the Federal Reserve System has announced modifications
to the method for imputing priced-service income from
clearing balance investments. The Board approved these
modifications at an open meeting on October 22, 2003.
The Federal Reserve Banks impute this income when
setting fees and measuring actual priced-service cost
recovery each year. The Board requested comment on
the changes in May 2003.
Clearing balances held at Reserve Banks are similar to compensating balances held at correspondent banks. Beginning in January 2004, Reserve Banks will impute the income from clearing balance investments on the basis of a broader portfolio of investments than the three-month Treasury bills used today, selected from instruments available to banks and subject to a risk-management framework that includes criteria consistent with those used by bank holding companies and regulators in evaluating investment risk.
The annual imputed investment return will be based on an underlying imputed investment portfolio but will be implemented as a constant annual spread over the three-month Treasury bill rate.
The Board's notice, which appeared in the Federal Register for October 28, 2003, is available here (261 KB, 12 pages).
Date: January, 2004.
For Further Information: Gregory L. Evans, Manager (202/452-3945), or Brenda L. Richards, Sr. Financial Analyst (202/452-2753), Division of Reserve Bank Operations and Payment Systems. Telecommunications Device for the Deaf (TDD) users may contact 202/263-4869.