March 3, 2005
To: All Member Banks and Others Concerned in the Third Federal Reserve District
Attention: Chief Executive Officer and Chief Financial Officer
Subject: Notice of Withdrawal from Non-Cash Collection Service
The Board of Governors of the Federal Reserve System has approved the Federal Reserve Banks’ proposal to stop providing services to depository institutions for the collection and processing of definitive municipal securities. The Reserve Banks will stop accepting deposits of bonds and coupons on September 30, 2005 , and will complete the withdrawal from the noncash collection service on December 30, 2005.
Definitive municipal securities are registered or bearer bonds that have been issued by state and local governments with interest coupons in certificated, or physical, form. Municipal bond and coupon volume has been declining since the passage of the Tax Equity and Fiscal Responsibility Act of 1982, which effectively eliminated the issuance of municipal bearer bonds. The noncash collection service is provided centrally by the Jacksonville Branch of the Federal Reserve Bank of Atlanta and represented less than 0.2 percent of the Reserve Banks’ total priced financial services costs in 2004.
The withdrawal from this service is prompted by the declining volume of definitive municipal securities, the Reserve Banks’ expected under-recovery of costs for providing the service in future years, and the availability of reasonable private-sector alternatives. With the exit of the Reserve Banks, depository institution customers of the noncash collection service could instead use a private-sector service provider, such as the Depository Trust Company or a correspondent bank, to collect their definitive municipal bonds and coupons or could present these items for payment directly to the paying agent.
The Federal Register notice, published March 3, 2005.
Date: Items for deposit will be accepted until September 30, 2005 , and withdrawal will be completed on December 30, 2005.
For Further Information: Kent Owens, Manager (202/728-5848), or
Lyndsay Huot, Financial Services Analyst (202/452-5238),
Division of Reserve Bank Operations and Payment Systems;
For the hearing impaired only
Telecommunications Device for the Deaf, 202/263-4869.