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In 2008, Philadelphia's total volume of commercial checks processed decreased 44 percent, and the dollar value of transactions decreased 50 percent, as a result of the general decline in check processing in the nation's payment system. The volume of commercial checks received as Check 21 electronic images increased 106 percent, and the dollar value increased 50 percent in 2008.
During the second and third quarters, government check volumes spiked compared with recent trends because of the federal government's economic stimulus package. However, the volume and dollar value of U.S. government checks decreased 20 and 25 percent, respectively, in 2008, mostly because Philadelphia's government check operation was consolidated at the St. Louis Reserve Bank in August 2008. Additionally, this decline follows the same downward experience as commercial checks because the Treasury is increasingly using electronic payments and because depositing banks are converting government paper checks to Check 21 electronic images. The Philadelphia Reserve Bank will remain a contingency site for U.S. government check processing.
In 2008, Philadelphia continued to be a major processor of cash in the Federal Reserve System, although the volume of currency processed decreased almost 6 percent because of a Federal Reserve System policy that requires financial institutions to recirculate more currency internally or pay a fee to the Fed. Because the Bank processed a greater proportion of smaller denomination notes, the actual dollar value of currency processed decreased by a more significant margin (22 percent). In 2008, the volume of coin bags processed on-site increased 8 percent because of increased activity by two external self-service coin-counting operations and an overabundance of coin in the District resulting from the 10th year of the State Quarters program. The value of processed coin, however, decreased slightly (4 percent) because the Bank processed a smaller proportion of dollar coins.
In 2008, there was a significant increase in discount window lending activity, both in the number of loans and the value of loans advanced by the Reserve Bank. The financial turbulence and the tightening of liquidity in the economy resulted in many depository institutions relying on the discount window as a source of funds to meet their liquidity needs. In addition to the normal lending programs (i.e., primary credit), financial institutions also took advantage of the new lending programs introduced by the Federal Reserve, such as the Term Auction Facility (TAF). Discount window activity increased significantly in the Third District during the late third quarter and fourth quarter of 2008.