The Federal Reserve System is to downsize its cheque processing operations in response to declining volumes with the loss of 400 jobs.
The Federal Reserve Banks, collectively the nation’s largest processor of cheques, says the changes will result in cost savings of $60 million by 2005 and $300 million over the next five years. Under the proposals, the Reserve Banks intend to shut down cheque processing operations at 13 sites nationwide and migrate cheque-adjustment functions from 43 locations to just 12.
The agency says the changes reflects the ongoing shift in consumer and business preferences from paper to electronic payments. Even though cheque payments remain the most popular form of noncash retail payment, they make up only 60% of all noncash retail payments today compared to 85% in 1979.
Recent Federal Reserve studies suggest that roughly 40 billion cheques were written in the US in 2002, down from about 50 billion in 1995. The Reserve Banks handle about 17 billion of these cheques annually, and this volume is expected to decline as well.
Responding to the decision, community banking trade association ICBA warned that banks may have to compress their daily processing schedules and incur additional transportation costs to allow extra time for cheques to travel greater distances to Federal Reserve processing sites.
ICBA chairman Pierce Stone, the chairman and CEO of Virginia Community Bank in Louisa says: "The Federal Reserve System must position today so that it can continue to offer all financial institutions, large and small, access to quality services at a reasonable price over the long term."
Cathy Minehan, president and CEO of the Federal Reserve Bank of Boston and chair of the Reserve Banks’ Financial Services Policy Committee says Reserve Banks will continue to provide cheque services on a nationwide basis and are working to maintain deposit times and availability "as close to current service levels as possible". In addition, new cheque-imaging and cheque-adjustments technology should help boost capacity.
Says Minehan: "One of the missions of the Federal Reserve System is to foster the efficiency, accessibility, and integrity of the nation’s payments system. We believe that the changes we are announcing are essential because they will provide the Reserve Banks greater flexibility to manage cheque operations in an environment of declining volumes.