Fed likely to close more check processing centers

Northwestern Financial Review, Jul 15-Jul 31, 2004 by Bengtson, Tom

The Federal Reserve has upped the ante on its program to streamline its check processing services. The Fed announced on June 17 that it is reviewing its check processing infrastructure and may decide to discontinue the service at some locations.

The announcement comes about a year and a half after the Fed announced it would reduce the number of check processing sites to 32 from 45 across the country, trimming about 400 jobs. At the time, the Fed said the move would save about $60 million in annual operating costs.

In its announcement last month, the Fed said: "Currently, the Reserve Banks are examining their existing check facilities and within the next few months will announce the discontinuation of some additional check processing facilities through 2005."

A columnist in the Independent Record, a daily newspaper in Helena, Mont., speculated that the check processing operation at the Helena branch of the Minneapolis Federal Reserve Bank would be among those closed. The Fed declined to respond. The Fed reports that 115 people work at the Helena branch, with 45 of those in the check processing operation.

After the Minneapolis Star Tribune newspaper reported the 300-person check processing operation at the Minneapolis Federal Reserve Bank could be closed, Fed spokesperson David Fettig rushed to quell the speculation. "The Minneapolis Fed is not expected to be among those closed. Given the size of the bank's check operations, its geographic location, and other factors, closure of the Minneapolis check operation next year is not being considered," he said in a statement.

The Minneapolis Fed cleared 775 million checks in 2003, down from 787 million in 2002.

In 2003, check volume at the Federal Reserve Banks declined about 5 percent. For 2004, check volumes have declined at an accelerated pace compared to the same period last year. A 2001 Federal Reserve study showed that about 42 billion checks were written that year in the United States, considerably lower than industry estimates. Those volumes are expected to continue to decline in coming years.

In addition, as other check processors take an increasing share of the check processing market, the Fed's share declines even further.

The announcement came from the Fed's Financial Services Policy Committee, which is headed by Minneapolis Fed Bank President, Gary Stern.

"These steps are part of a forward-looking strategy that acknowledges the financial services industry's ongoing evolution from paper to electronic processing," said Stern.

By Tom Bengtson