To: All Member Banks and Others Concerned in the Third Federal Reserve District

Attention: Chief Executive Officer and Chief Financial Officer

Subject: Imputed Investment Income on Clearing Balances


The Federal Reserve Board requests comment on a proposal to modify the method for imputing priced-service income from clearing balance investments. Federal Reserve Banks impute this income when setting fees and measuring actual cost recovery each year. Comments must be submitted by July 14, 2003.

Clearing balances held at Reserve Banks are similar to compensating balances held by respondent banks at correspondent banks. Reserve Banks currently assume that all available clearing balances are invested in three-month Treasury bills. The Board proposes to impute the income from its clearing balance investments on the basis of a broader portfolio of investment instruments than used today. Imputed investments would be selected from instruments available to bank holding companies and would be subject to a risk management framework that includes criteria consistent with those used by bank holding companies and regulators in evaluating investment risk. The Monetary Control Act requires Federal Reserve Banks to establish fees for priced services provided to depository institutions at a level necessary to recover, over the long run, all direct and indirect costs actually incurred and imputed costs. The Reserve Banks also impute income that would have been earned on the investment of clearing balances customers hold with the Reserve Banks had those balances been held by a private business firm.

A copy of the Board’s notice is attached (39 KB, 13 pages).

Address: Comments, which should refer to Docket No. R-1152, may be mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, NW, Washington, DC 20551. However, because paper mail in the Washington area and at the Board of Governors is subject to delay, please consider submitting your comments by e-mail to or faxing them to the Office of the Secretary at 202/452-3819 or 202/452-3102. Members of the public may inspect comments in Room MP-500 between 9 a.m. and 5 p.m. weekdays, pursuant to § 261.12, except as provided in § 261.14 of the Board’s Rules Regarding Availability of Information, 12 CFR 261.12 and 261.14.

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.