By Mark Brousseau
While the Federal Reserve Bank’s latest figures show that electronic payments continue to achieve strong growth, the data also suggests we’re still a long way off from the eagerly-anticipated “checkless” society.
With 28.8 billion checks written in 2010 -- the last year the Federal Reserve researched -- the number of checks written between 2007 and 2010 declined by about 6 percent per year. What’s more, 92 percent of checks are now cleared electronically between U.S. banks, according to the Federal Reserve’s research.
So what should remittance processors make of this data?
“It’s clear that U.S. check volumes continue to decline at a gradual rate,” says Creditron Founder and CEO Wally Vogel, “But checks are not likely to disappear any time soon.” While those might be sobering words from some paper-weary operations managers, they can take heart in the fact that paper deposits – a drag on costs and efficiency – are experiencing a rapid decline as Check 21 emerges as the method of choice for deposits (Vogel points to NACHA figures showing a big drop in Accounts Receivable Check Conversion volumes). “This is bad news for manufacturers of high-volume check encoding equipment, but it’s a great opportunity for providers of Check 21 remote deposit technology. There are many remittance shops that manually process their transactions, or have outdated solutions that don’t support Check 21. With banks continuing to lower their fees for Check 21 deposits, many of these shops will likely look for electronic solutions.”
Vogel notes that Creditron has recently seen strong demand for its Check 21 remote deposit capabilities. “The market is recognizing the value of remittance solutions that offer Check 21 remote deposit, as well as an image-based workflow. Against this backdrop, I think we are well-positioned for success and growth.”
What do you think?
Showing posts with label Federal Reserve Bank. Show all posts
Showing posts with label Federal Reserve Bank. Show all posts
Wednesday, April 6, 2011
Thursday, February 17, 2011
Banks should get back to the boring
Posted by Mark Brousseau
As the world closes in on the three-year mark of the beginning of the global financial crisis, one expert believes that it’s not enough to rely on new regulations to prevent future disasters — a fundamental change in mindset is required.
Rex Ghosh, a Harvard PhD economist who has worked in the financial markets for more than 20 years, currently with the International Monetary Fund, believes that the very culture of the financial sector needs to shift back to basics as the economy limps out of recession.
“The global financial crisis, marked by the bankruptcy of Lehman Brothers in September 2008, has taken an enormous economic, financial, and social toll,” said Ghosh. “Both in the United States and abroad, regulations, laws, and practices are being changed to help ensure that such crises do not recur. But these regulations — running to the thousands of pages — are enormously complex. It may be years before they are all adopted and absorbed into the daily lives of those in the financial sector. The real prevention rests in the notion that leaders need to work toward changing the very culture of the sector to rely on more fundamental and basic practices based in prudence and responsibility.”
Ghosh would like to see the financial sector learn the following lessons in 2011:
... For the Federal Reserve -- Central banks such as the Fed should not only look at goods price inflation, but also at important asset prices, such as the stock market and housing sectors. It also needs to be more mindful of lending and credit booms, especially in the face of weakening credit standards. That’s what paved the road to hell three years ago. We do not want to repeat that option again. Traditional monetary policy tools (like the Fed’s interest rate) may need to be bolstered by counter-cyclical capital requirements (requiring banks to hold more capital in “boom” times).
... For Banks -- Boring is good. Banks should get used to being a much smaller proportion of the economy, like it was before the 1990s. Bankers should also be aware of credit and counterparty risks. They need to know who they’re doing business with, know to whom they are lending and not rely solely on credit ratings.
... For Regulators – They need to watch the kids and the cookie jar. They should not count on banks to manage their risks prudently. They should think seriously about “tail risks” — just because something has not happened before, such as a nation-wide decline in house prices, doesn’t mean it cannot happen in the future.
“These are not incredibly difficult precepts,” Ghosh added. “The short answer is that the Fed needs to broaden its view of what constitutes inflation, banks need to look past the paperwork and avoid risk, and regulators need to realize their jobs don’t end with the passage of new rules. For every regulation created, there are 50 new ways created to get around it. We need to realize that the practices of the past won’t go away until we match the letter of the regulations with the culture of the financial sector.”
What do you think?
As the world closes in on the three-year mark of the beginning of the global financial crisis, one expert believes that it’s not enough to rely on new regulations to prevent future disasters — a fundamental change in mindset is required.
Rex Ghosh, a Harvard PhD economist who has worked in the financial markets for more than 20 years, currently with the International Monetary Fund, believes that the very culture of the financial sector needs to shift back to basics as the economy limps out of recession.
“The global financial crisis, marked by the bankruptcy of Lehman Brothers in September 2008, has taken an enormous economic, financial, and social toll,” said Ghosh. “Both in the United States and abroad, regulations, laws, and practices are being changed to help ensure that such crises do not recur. But these regulations — running to the thousands of pages — are enormously complex. It may be years before they are all adopted and absorbed into the daily lives of those in the financial sector. The real prevention rests in the notion that leaders need to work toward changing the very culture of the sector to rely on more fundamental and basic practices based in prudence and responsibility.”
Ghosh would like to see the financial sector learn the following lessons in 2011:
... For the Federal Reserve -- Central banks such as the Fed should not only look at goods price inflation, but also at important asset prices, such as the stock market and housing sectors. It also needs to be more mindful of lending and credit booms, especially in the face of weakening credit standards. That’s what paved the road to hell three years ago. We do not want to repeat that option again. Traditional monetary policy tools (like the Fed’s interest rate) may need to be bolstered by counter-cyclical capital requirements (requiring banks to hold more capital in “boom” times).
... For Banks -- Boring is good. Banks should get used to being a much smaller proportion of the economy, like it was before the 1990s. Bankers should also be aware of credit and counterparty risks. They need to know who they’re doing business with, know to whom they are lending and not rely solely on credit ratings.
... For Regulators – They need to watch the kids and the cookie jar. They should not count on banks to manage their risks prudently. They should think seriously about “tail risks” — just because something has not happened before, such as a nation-wide decline in house prices, doesn’t mean it cannot happen in the future.
“These are not incredibly difficult precepts,” Ghosh added. “The short answer is that the Fed needs to broaden its view of what constitutes inflation, banks need to look past the paperwork and avoid risk, and regulators need to realize their jobs don’t end with the passage of new rules. For every regulation created, there are 50 new ways created to get around it. We need to realize that the practices of the past won’t go away until we match the letter of the regulations with the culture of the financial sector.”
What do you think?
Monday, October 18, 2010
Dodd-Frank to Usher in 'Decade of the Whistleblower?"
Posted by Mark Brousseau
When President Obama signed the Wall Street reform bill into law on July 21, two prominent attorneys say he likely ushered in what might be called "the decade of the whistleblower"—an era marked by a flood of federal investigations sparked by bounty-hunting employees looking to cash in on rewards that, in some cases, could turn them into instant millionaires.
Indeed, the Dodd-Frank bill became law just three months ago, but plaintiff's firms already report an astronomical jump in calls from would-be whistleblowers, note LeClairRyan attorneys James P. Anelli, a veteran labor and employment attorney with decades of experience representing management, and Carlos F. Ortiz, a seasoned white-collar defense attorney who served as a federal prosecutor for more than 15 years. Both attorneys are shareholders in LeClairRyan, based in the firm's Newark, N.J., office.
While the Dodd-Frank Act has been widely discussed, it's extremely significant whistleblower provisions have gone nearly unnoticed, the attorneys say. And yet, under those provisions, whistleblowers that provide information that exposes SEC violations will get up to 30 percent of fines exceeding $1 million. "Bear in mind that recent fines involving violations of the Foreign Corrupt Practices Act (FCPA) have reached up to $100 million," Ortiz notes. "The fallout from these whistleblower provisions will be huge. This is an incredible incentive for employees who are looking to get rich to do all they can to gather information on, and report, potential violations by their employers. Why would they go through existing compliance hotlines when they can contact a plaintiff's attorney and pursue such potentially lucrative payouts?"
Generally speaking, the scope of previous SEC whistleblower laws was limited to cases of insider trading. Dodd-Frank, which will be administered by the newly created Bureau of Consumer and Financial Protection, applies to all potential SEC and commodities-trading violations. For a variety of reasons, it will affect a broad swath of both private and public entities, Anelli notes. "In the old days, whistleblower laws applied to Wall Street traders using insider knowledge to swap 'hot stock tips' with each other, but the new framework is quite broad," he explains. "It applies to virtually any company that deals with consumer credit, loans or property in any capacity, including mortgage brokers, financial advisors and credit-counseling services."
Ortiz says public companies that do business overseas could be forced to deal with an upsurge in employee-generated complaints under FCPA (the conduct of foreign intermediaries, for example, is already under close federal scrutiny.) But public companies are not the only ones that will be affected by the bounty-hunting provisions, Ortiz warns: their subsidiaries and privately-held competitors might also come under closer federal scrutiny.
"Let's assume your company is privately owned and does business in Malaysia," Ortiz says. "If your chief competitor in the market is a publicly-traded American company that, thanks to a whistleblower complaint, becomes the target of a federal investigation, the Department of Justice might launch a broader 'industry probe.' DOJ might say, in effect, 'Now that we know Company X was bribing officials in Malaysia to get work, let's investigate all of its competitors.'"
Moreover, Anelli says the new whistleblower provisions apply to all of the subsidiaries of any public company. "A large public company might have 100 subsidiaries, and as long as the financial information of those subsidiaries is used in its consolidated financial statement, those entities are covered under this law," he says. "The 'Wall Street reforms' actually have a reach that is far beyond the publicly-traded realm."
The potential stakes, the attorneys note, are high: Federal enforcement actions have been increasingly aggressive in recent years, with approximately 150 companies already under investigation for FCPA violations and a growing number of individual executives being singled out for prosecution. "The reforms included a burden-shifting framework that is favorable to employees," Anelli concludes. "Under this framework, employees in many instances will now be able to show that they meet the burden of proof that is required to recover their cut of the eventual fine. Because of the amounts involved, whistleblower cases are going to turn into big business for plaintiff's law firms. As more whistleblowers start making big bounties—and headlines—the number of investigations will only grow. Careful preparation clearly is in order."
What do you think?
When President Obama signed the Wall Street reform bill into law on July 21, two prominent attorneys say he likely ushered in what might be called "the decade of the whistleblower"—an era marked by a flood of federal investigations sparked by bounty-hunting employees looking to cash in on rewards that, in some cases, could turn them into instant millionaires.
Indeed, the Dodd-Frank bill became law just three months ago, but plaintiff's firms already report an astronomical jump in calls from would-be whistleblowers, note LeClairRyan attorneys James P. Anelli, a veteran labor and employment attorney with decades of experience representing management, and Carlos F. Ortiz, a seasoned white-collar defense attorney who served as a federal prosecutor for more than 15 years. Both attorneys are shareholders in LeClairRyan, based in the firm's Newark, N.J., office.
While the Dodd-Frank Act has been widely discussed, it's extremely significant whistleblower provisions have gone nearly unnoticed, the attorneys say. And yet, under those provisions, whistleblowers that provide information that exposes SEC violations will get up to 30 percent of fines exceeding $1 million. "Bear in mind that recent fines involving violations of the Foreign Corrupt Practices Act (FCPA) have reached up to $100 million," Ortiz notes. "The fallout from these whistleblower provisions will be huge. This is an incredible incentive for employees who are looking to get rich to do all they can to gather information on, and report, potential violations by their employers. Why would they go through existing compliance hotlines when they can contact a plaintiff's attorney and pursue such potentially lucrative payouts?"
Generally speaking, the scope of previous SEC whistleblower laws was limited to cases of insider trading. Dodd-Frank, which will be administered by the newly created Bureau of Consumer and Financial Protection, applies to all potential SEC and commodities-trading violations. For a variety of reasons, it will affect a broad swath of both private and public entities, Anelli notes. "In the old days, whistleblower laws applied to Wall Street traders using insider knowledge to swap 'hot stock tips' with each other, but the new framework is quite broad," he explains. "It applies to virtually any company that deals with consumer credit, loans or property in any capacity, including mortgage brokers, financial advisors and credit-counseling services."
Ortiz says public companies that do business overseas could be forced to deal with an upsurge in employee-generated complaints under FCPA (the conduct of foreign intermediaries, for example, is already under close federal scrutiny.) But public companies are not the only ones that will be affected by the bounty-hunting provisions, Ortiz warns: their subsidiaries and privately-held competitors might also come under closer federal scrutiny.
"Let's assume your company is privately owned and does business in Malaysia," Ortiz says. "If your chief competitor in the market is a publicly-traded American company that, thanks to a whistleblower complaint, becomes the target of a federal investigation, the Department of Justice might launch a broader 'industry probe.' DOJ might say, in effect, 'Now that we know Company X was bribing officials in Malaysia to get work, let's investigate all of its competitors.'"
Moreover, Anelli says the new whistleblower provisions apply to all of the subsidiaries of any public company. "A large public company might have 100 subsidiaries, and as long as the financial information of those subsidiaries is used in its consolidated financial statement, those entities are covered under this law," he says. "The 'Wall Street reforms' actually have a reach that is far beyond the publicly-traded realm."
The potential stakes, the attorneys note, are high: Federal enforcement actions have been increasingly aggressive in recent years, with approximately 150 companies already under investigation for FCPA violations and a growing number of individual executives being singled out for prosecution. "The reforms included a burden-shifting framework that is favorable to employees," Anelli concludes. "Under this framework, employees in many instances will now be able to show that they meet the burden of proof that is required to recover their cut of the eventual fine. Because of the amounts involved, whistleblower cases are going to turn into big business for plaintiff's law firms. As more whistleblowers start making big bounties—and headlines—the number of investigations will only grow. Careful preparation clearly is in order."
What do you think?
Saturday, July 10, 2010
Same-day ACH settlement highlights need for better dispute management tools
By Ed Pearce (epearce@egisticsinc.com)
Last week's announcement by the Federal Reserve Board of posting rules for a new same-day automated clearing house (ACH) service brought the topic front and center. Everyone from industry analysts and bloggers to trade publications and associations have expounded the pros and cons of same-day settlement. But virtually unmentioned in the all the hubbub is the potential for more ACH disputes as a result of accelerated settlement -- a scenario most banks are ill-prepared to manage.
Starting next month, the Federal Reserve Banks will be offering a same-day settlement service for certain ACH debit payments through its FedACH service. FedACH customers may opt-in to the service by completing a participation agreement. The service will be limited to transactions arising from consumer checks converted to ACH and consumer debit transfers initiated over the Internet and phone. Same-day forward debit transfers will post to a financial institution's Federal Reserve account at 5 p.m. eastern time, while same-day return debit transfers will post at 5:30 p.m.
As a result of the faster settlement, banks undoubtedly will see more consumers coming into their branches complaining of unauthorized transactions. The limitations of traditional in-house ACH systems and the strict time constraints and complex processing requirements imposed by NACHA rules and Regulation E already have led to sharp increases in operations expenses and higher charge-offs associated with ACH disputes. A new influx of consumer disputes will require financial institutions to implement a more centralized, more streamlined approach to dispute management.
Several features will be critical:
• Real-time distributed data access to any authorized user, anywhere
• Intuitive search capabilities
• The ability to annotate comments to disputed transactions
• The ability to export data
• Expanded search capabilities
• Filtering capabilities to block and restrict access to certain transactions
• Unlimited data storage
It may be some time before same-day ACH settlement achieves critical mass. But the next generation of consumers will demand it. This means that banks must begin adapting their ACH infrastructure today or risk even higher operations costs, as well as falling behind the competition. And this includes deploying sophisticated solutions to manage the inevitable spike in ACH disputes.
Last week's announcement by the Federal Reserve Board of posting rules for a new same-day automated clearing house (ACH) service brought the topic front and center. Everyone from industry analysts and bloggers to trade publications and associations have expounded the pros and cons of same-day settlement. But virtually unmentioned in the all the hubbub is the potential for more ACH disputes as a result of accelerated settlement -- a scenario most banks are ill-prepared to manage.
Starting next month, the Federal Reserve Banks will be offering a same-day settlement service for certain ACH debit payments through its FedACH service. FedACH customers may opt-in to the service by completing a participation agreement. The service will be limited to transactions arising from consumer checks converted to ACH and consumer debit transfers initiated over the Internet and phone. Same-day forward debit transfers will post to a financial institution's Federal Reserve account at 5 p.m. eastern time, while same-day return debit transfers will post at 5:30 p.m.
As a result of the faster settlement, banks undoubtedly will see more consumers coming into their branches complaining of unauthorized transactions. The limitations of traditional in-house ACH systems and the strict time constraints and complex processing requirements imposed by NACHA rules and Regulation E already have led to sharp increases in operations expenses and higher charge-offs associated with ACH disputes. A new influx of consumer disputes will require financial institutions to implement a more centralized, more streamlined approach to dispute management.
Several features will be critical:
• Real-time distributed data access to any authorized user, anywhere
• Intuitive search capabilities
• The ability to annotate comments to disputed transactions
• The ability to export data
• Expanded search capabilities
• Filtering capabilities to block and restrict access to certain transactions
• Unlimited data storage
It may be some time before same-day ACH settlement achieves critical mass. But the next generation of consumers will demand it. This means that banks must begin adapting their ACH infrastructure today or risk even higher operations costs, as well as falling behind the competition. And this includes deploying sophisticated solutions to manage the inevitable spike in ACH disputes.
Wednesday, May 6, 2009
New Check 21 Standards and Practices
Posted by Mark Brousseau
To prepare for the industry adoption of new Check 21 standards and practices, the Federal Reserve will be making changes to its pre-production (test) environment. These changes will not impact the production environment which processes Check 21 file deposits.
While these changes are being implemented, the Federal Reserve recommends customers delay or minimize testing between May 11 and May 18 until the changes are fully implemented and validated.
Beginning May 11, 2009, the Federal Reserve Banks’ test environment will be updated to include an expanded set of file validations on Image Cash Letter Deposits. Validation will be performed on a broader spectrum of fields and records, including TIFF image analysis. The expanded file validation will align Federal Reserve Check 21 deposit requirements with practices outlined in the Universal Companion Document (UCD) developed by the CheckImage Collaborative (http://www.checkimagecentral.org). The TIFF validation will align Federal Reserve Check 21 deposit requirements with ASC X9.100-181-2007, the Specification for TIFF Image Format for Image Exchange (http://www.X9.org).
With the May 11 implementation date, customers submitting test files will receive new and expanded file validation results. Test customers may notice an increase in the number of errors displayed by the File Acknowledgement Accept/Reject Notices. The validation results may require participants to make customer based parameter changes to their image or item processing software. Some may even require vendor contact or technical assistance. Any TIFF validation errors will be shared separately by Federal Reserve Bank implementation managers.
The Federal Reserve says it has been working closely with the Check 21 vendor community on this initiative. The Federal Reserve's plan is to monitor customer test results and industry adoption to ensure all participants are prepared for live implementation. All Federal Reserve customers will be provided notice of the production implementation date well in advance. Federal Reserve Bank implementation managers are available to work with customers who may need assistance in adopting the new validation practices and test changes to achieve compliance.
To prepare for the industry adoption of new Check 21 standards and practices, the Federal Reserve will be making changes to its pre-production (test) environment. These changes will not impact the production environment which processes Check 21 file deposits.
While these changes are being implemented, the Federal Reserve recommends customers delay or minimize testing between May 11 and May 18 until the changes are fully implemented and validated.
Beginning May 11, 2009, the Federal Reserve Banks’ test environment will be updated to include an expanded set of file validations on Image Cash Letter Deposits. Validation will be performed on a broader spectrum of fields and records, including TIFF image analysis. The expanded file validation will align Federal Reserve Check 21 deposit requirements with practices outlined in the Universal Companion Document (UCD) developed by the CheckImage Collaborative (http://www.checkimagecentral.org). The TIFF validation will align Federal Reserve Check 21 deposit requirements with ASC X9.100-181-2007, the Specification for TIFF Image Format for Image Exchange (http://www.X9.org).
With the May 11 implementation date, customers submitting test files will receive new and expanded file validation results. Test customers may notice an increase in the number of errors displayed by the File Acknowledgement Accept/Reject Notices. The validation results may require participants to make customer based parameter changes to their image or item processing software. Some may even require vendor contact or technical assistance. Any TIFF validation errors will be shared separately by Federal Reserve Bank implementation managers.
The Federal Reserve says it has been working closely with the Check 21 vendor community on this initiative. The Federal Reserve's plan is to monitor customer test results and industry adoption to ensure all participants are prepared for live implementation. All Federal Reserve customers will be provided notice of the production implementation date well in advance. Federal Reserve Bank implementation managers are available to work with customers who may need assistance in adopting the new validation practices and test changes to achieve compliance.
Sunday, February 15, 2009
More Fed Layoffs
Posted by Mark Brousseau
An item from Saturday's Baltimore Sun:
The Federal Reserve Bank of Richmond said 55 employees in Baltimore will be laid off because the Fed is shutting down the check-processing operations in April.
The move is part of a consolidation of nearly two dozen check-processing facilities into four initially announced in 2007 as paper check volumes declined due to the increase of credit and debit card payments. Since that time, paper check volume has continued to fall, resulting in the Federal Reserve Bank of Cleveland serving as the single paper check processing site by the end of 2009.
An item from Saturday's Baltimore Sun:
The Federal Reserve Bank of Richmond said 55 employees in Baltimore will be laid off because the Fed is shutting down the check-processing operations in April.
The move is part of a consolidation of nearly two dozen check-processing facilities into four initially announced in 2007 as paper check volumes declined due to the increase of credit and debit card payments. Since that time, paper check volume has continued to fall, resulting in the Federal Reserve Bank of Cleveland serving as the single paper check processing site by the end of 2009.
Wednesday, February 11, 2009
Chicago Fed Cutting Ops Jobs
Posted by Mark Brousseau
This article from the Chicago Tribune is a sign of things to come:
Chicago Fed to cut jobs at check-processing center; first 26 set for next month
By James P. Miller
Tribune reporter
February 9, 2009
A total of 26 employees of the Federal Reserve Bank of Chicago will lose their jobs next month, as the nation's central bank continues to respond to the dramatic falloff in the use of paper checks by cutting back its once extensive network of check-processing faciliities.
In the latest State of Illinois 'WARN" list of employers who have notified workers of impending large-scale layoffs, all of the 97 jobs at the Federal Reserve's Chicago check-processing center in southwest suburban Bedford Park are listed for elimination beginning in March.
But a spokesman for the Chicago Fed said only 26 jobs will be cut next month; the remaining 71 will remain active until at least the fourth quarter.
As recently as 2003, the Federal Reserve banking system had 45 full-service check-processing centers around the country. But credit cards continue to displace the use of paper checks, and at the same time regulatory changes have made it easier to present checks for payment as an electronic image rather than in physical form.
So, the U.S. Fed had halved processing centers by mid-2007, and late last year the central bank announced a plan to operate just one full-service paper-check processing center, in Cleveland, and one electronic-check processing center in Atlanta.
The other processing centers, including the Chicago-area site, will wind down under what the Fed has referred to as "a flexible restructuring schedule," which will lead to their closure "when paper check volumes no longer justify the existing operation."
The Chicago Fed's spokesman said it's not clear when the Chicago center will cease operations. In fact, he said, it is possible that the Chicago center will remain operative, with just a "handful" of employees printing substitute checks from images for the modest number of banks that require a physical check.
The Fed has said it will seek to reassign at least a portion of the workers, if other jobs are available.
The number of paper checks totaled 42 billion in 2001, but by 2006 (the last year for which Fed numbers are available) that number had dropped 29 percent to 30 billion.
This article from the Chicago Tribune is a sign of things to come:
Chicago Fed to cut jobs at check-processing center; first 26 set for next month
By James P. Miller
Tribune reporter
February 9, 2009
A total of 26 employees of the Federal Reserve Bank of Chicago will lose their jobs next month, as the nation's central bank continues to respond to the dramatic falloff in the use of paper checks by cutting back its once extensive network of check-processing faciliities.
In the latest State of Illinois 'WARN" list of employers who have notified workers of impending large-scale layoffs, all of the 97 jobs at the Federal Reserve's Chicago check-processing center in southwest suburban Bedford Park are listed for elimination beginning in March.
But a spokesman for the Chicago Fed said only 26 jobs will be cut next month; the remaining 71 will remain active until at least the fourth quarter.
As recently as 2003, the Federal Reserve banking system had 45 full-service check-processing centers around the country. But credit cards continue to displace the use of paper checks, and at the same time regulatory changes have made it easier to present checks for payment as an electronic image rather than in physical form.
So, the U.S. Fed had halved processing centers by mid-2007, and late last year the central bank announced a plan to operate just one full-service paper-check processing center, in Cleveland, and one electronic-check processing center in Atlanta.
The other processing centers, including the Chicago-area site, will wind down under what the Fed has referred to as "a flexible restructuring schedule," which will lead to their closure "when paper check volumes no longer justify the existing operation."
The Chicago Fed's spokesman said it's not clear when the Chicago center will cease operations. In fact, he said, it is possible that the Chicago center will remain operative, with just a "handful" of employees printing substitute checks from images for the modest number of banks that require a physical check.
The Fed has said it will seek to reassign at least a portion of the workers, if other jobs are available.
The number of paper checks totaled 42 billion in 2001, but by 2006 (the last year for which Fed numbers are available) that number had dropped 29 percent to 30 billion.
Thursday, June 19, 2008
Federal Reserve Seeks Tenants
Posted by Mark Brousseau
An interesting article from the Associated Press on the Federal Reserve's extra office space:
Fed leases more space as people write fewer checks
By SUSAN GALLAGHER
The Associated Press
Tuesday, June 17, 2008; 3:45 AM
HELENA, Mont. -- The shift to fewer paper checks and greater electronic movement of money in the United States has left the Federal Reserve with some empty office space.
Processing of checks by the Fed, a service commercial banks purchase, is down as more Americans pay their expenses electronically with debit cards, automatic deductions from checking accounts or other options.
More than two-thirds of the noncash payments in the U.S. are electronic, according to the Fed. Locations where the nation's central bank clears checks have fallen from 45 to 18 within the last few years, and the number of Fed check employees is down to 2,800 from 4,600 in 2003.
Check work previously at the Helena Branch of the Federal Reserve Bank of Minneapolis has been consolidated with Denver operations. Branch manager Paul Drake says about one-third of roughly 100 Helena jobs ended last year, freeing up space in the brick building near the city's historic Last Chance Gulch. Now a construction crew is remodeling part of the building for a tenant set to arrive this summer.
Some Fed locations were leasing offices long before changes in the check business but now may be seeking more tenants because of reductions in check processing.
Leasing is among options being considered for Fed space that will become vacant in Cincinnati when its check operations move to Cleveland by year's end, and in Charlotte, N.C., and Baltimore when check work moves to Atlanta and Philadelphia. The Federal Reserve Bank of San Francisco has a couple of established tenants and expects to lease additional space this year as check processing operations are removed, spokeswoman Carol Eckert said.
The Fed expects that as its check processing is scaled back, eventually only the Atlanta, Cleveland, Philadelphia and Dallas locations will perform a full range of check work.
In Montana, Silicon Valley-based SRI International will move its Helena operations and staff of 10 into 3,300 square feet of the Federal Reserve building next month, SRI spokeswoman Ellie Javadi said. The relocation will provide expansion room for the research-and-development nonprofit founded in 1946 as Stanford Research Institute.
With distribution of cash to financial institutions one of the Fed's functions, and its banks housing millions of dollars, managers don't want just any business to move in.
"There are certain tenants that would make a good fit for a facility such as this, and there are some that wouldn't," said Helena's Drake, declining to elaborate.
Talk between representatives of the Federal Reserve and SRI occurred during an economic-development conference last year in Butte and ultimately led to the SRI lease.
Electronic payments first surpassed checks in 2003, when 36.7 billion checks were written and electronic payments surged to 44.5 billion, according to the Fed. Further reducing paper handling is Check 21, a federal law that allows banks to send digital images of the checks people do write, rather than moving those slips of paper from place to place for processing.
Although "wringing the paper out of the system" boosts efficiency and checks are receding dramatically, don't expect a checkless society anytime soon, said Doug Johnson of the American Bankers Association, an industry group in Washington, D.C. "For the foreseeable future, there will be people who are accustomed to sending their payments by check," said Johnson, vice president of risk management policy.
Three in 10 bank customers say checks remain their preferred method of payment, said Wendy Feller of IBM's Institute for Business Value, a research unit in San Francisco. Security is consumers' leading concern about electronic transfer, Feller said.
But that is not the issue for Brian Johnson, whose bill payments keeps checks moving into the Federal Reserve or other clearinghouses.
The 25-year-old assistant at a Helena retirement complex finds that paying electronically "feels like another step in losing control of my budget."
"I send checks every month," Johnson said. "I want them to send me a bill, and I want to look at the bill, and I want to budget the bill, and then I'll send them a check."
An interesting article from the Associated Press on the Federal Reserve's extra office space:
Fed leases more space as people write fewer checks
By SUSAN GALLAGHER
The Associated Press
Tuesday, June 17, 2008; 3:45 AM
HELENA, Mont. -- The shift to fewer paper checks and greater electronic movement of money in the United States has left the Federal Reserve with some empty office space.
Processing of checks by the Fed, a service commercial banks purchase, is down as more Americans pay their expenses electronically with debit cards, automatic deductions from checking accounts or other options.
More than two-thirds of the noncash payments in the U.S. are electronic, according to the Fed. Locations where the nation's central bank clears checks have fallen from 45 to 18 within the last few years, and the number of Fed check employees is down to 2,800 from 4,600 in 2003.
Check work previously at the Helena Branch of the Federal Reserve Bank of Minneapolis has been consolidated with Denver operations. Branch manager Paul Drake says about one-third of roughly 100 Helena jobs ended last year, freeing up space in the brick building near the city's historic Last Chance Gulch. Now a construction crew is remodeling part of the building for a tenant set to arrive this summer.
Some Fed locations were leasing offices long before changes in the check business but now may be seeking more tenants because of reductions in check processing.
Leasing is among options being considered for Fed space that will become vacant in Cincinnati when its check operations move to Cleveland by year's end, and in Charlotte, N.C., and Baltimore when check work moves to Atlanta and Philadelphia. The Federal Reserve Bank of San Francisco has a couple of established tenants and expects to lease additional space this year as check processing operations are removed, spokeswoman Carol Eckert said.
The Fed expects that as its check processing is scaled back, eventually only the Atlanta, Cleveland, Philadelphia and Dallas locations will perform a full range of check work.
In Montana, Silicon Valley-based SRI International will move its Helena operations and staff of 10 into 3,300 square feet of the Federal Reserve building next month, SRI spokeswoman Ellie Javadi said. The relocation will provide expansion room for the research-and-development nonprofit founded in 1946 as Stanford Research Institute.
With distribution of cash to financial institutions one of the Fed's functions, and its banks housing millions of dollars, managers don't want just any business to move in.
"There are certain tenants that would make a good fit for a facility such as this, and there are some that wouldn't," said Helena's Drake, declining to elaborate.
Talk between representatives of the Federal Reserve and SRI occurred during an economic-development conference last year in Butte and ultimately led to the SRI lease.
Electronic payments first surpassed checks in 2003, when 36.7 billion checks were written and electronic payments surged to 44.5 billion, according to the Fed. Further reducing paper handling is Check 21, a federal law that allows banks to send digital images of the checks people do write, rather than moving those slips of paper from place to place for processing.
Although "wringing the paper out of the system" boosts efficiency and checks are receding dramatically, don't expect a checkless society anytime soon, said Doug Johnson of the American Bankers Association, an industry group in Washington, D.C. "For the foreseeable future, there will be people who are accustomed to sending their payments by check," said Johnson, vice president of risk management policy.
Three in 10 bank customers say checks remain their preferred method of payment, said Wendy Feller of IBM's Institute for Business Value, a research unit in San Francisco. Security is consumers' leading concern about electronic transfer, Feller said.
But that is not the issue for Brian Johnson, whose bill payments keeps checks moving into the Federal Reserve or other clearinghouses.
The 25-year-old assistant at a Helena retirement complex finds that paying electronically "feels like another step in losing control of my budget."
"I send checks every month," Johnson said. "I want them to send me a bill, and I want to look at the bill, and I want to budget the bill, and then I'll send them a check."
Saturday, March 29, 2008
Plan Would Empower Fed
Posted by Mark Brousseau
An interesting article in yesterday's New York Times:
Treasury Dept. Plan Would Give Fed Wide New Power
By EDMUND L. ANDREWS
WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.
The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.
Democratic lawmakers are all but certain to say the proposal does not go far enough in restricting the kinds of practices that caused the financial crisis. Many of the proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation.
According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.
While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.
The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings.
The plan would give the Fed some authority over Wall Street firms, but only when an investment bank’s practices threatened the entire financial system.
And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security.
Parts of the plan could reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors. The plan would merge the S.E.C. with the Commodity Futures Trading Commission, which regulates exchange-traded futures for oil, grains, currencies and the like.
The blueprint also suggests several areas where the S.E.C. should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets.
The proposal began last year as an effort by Henry M. Paulson Jr., secretary of the Treasury, to make American financial markets more competitive against overseas markets by modernizing a creaky regulatory system.
His goal was to streamline the different and sometimes clashing rules for commercial banks, savings and loans and nonbank mortgage lenders.
“I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years,” Mr. Paulson will say in a speech on Monday, according to a draft. “I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible.”
Congress would have to approve almost every element of the proposal, and Democratic leaders are already drafting their own bills to impose tougher supervision over Wall Street investment banks, hedge funds and the fast-growing market in derivatives like credit default swaps.
But Mr. Paulson’s proposal for the Fed echoes ideas championed by Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee.
Both see the Fed overseeing risk across the entire financial spectrum, but Mr. Frank is likely to favor a stronger Fed role and to subject investment banks to the same rules that commercial banks now must follow, especially for capital reserves.
The Treasury plan would let Fed officials examine the practices and even the internal bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the overall financial system.
That would be a significant expansion of the central bank’s regulatory mission.
When Fed officials agreed this month to rescue Bear Stearns, once the nation’s fifth-largest investment bank, they pointedly noted that the Fed never had the authority to monitor its financial condition or order it to bolster its protections against a collapse.
In two unprecedented moves, the Fed engineered a marriage between JPMorgan Chase and Bear Stearns, lending $29 billion to JPMorgan to prevent a Bear bankruptcy and a chain of defaults that might have felled much of the financial system.
For the first time since the 1930s, the Fed also agreed to let investment banks borrow hundreds of billions of dollars from its discount window, an emergency lending program reserved for commercial banks and other depository institutions.
But Mr. Paulson’s proposal would fall well short of the kind of regulation that Democrats have been proposing. Mr. Frank and other senior Democrats have argued that investment banks and other lightly regulated institutions now compete with commercial banks and should be subject to similar regulation, including examiners who regularly pore over their books and quietly demand changes in their practices.
In a recent interview, Mr. Frank said he realized the need for tighter regulation of Wall Street firms after a meeting with Charles O. Prince III, then chairman of Citigroup.
When Mr. Frank asked why Citigroup had kept billions of dollars in “structured investment vehicles” off the firm’s balance sheet, he recalled, Mr. Prince responded that Citigroup, as a bank holding company, would have been at a disadvantage because investment firms can operate with higher debt and lower capital reserves.
Senator Charles E. Schumer, Democrat of New York, has taken a similar stance.
“Commercial banks continue to be supervised closely, and are subject to a host of rules meant to limit systemic risk,” Mr. Schumer wrote in an op-ed article on Friday in The Wall Street Journal. “But many other financial institutions, including investment banks and hedge funds, are regulated lightly, if at all, even though they act in many ways like banks.”
Mr. Paulson’s proposal is likely to provoke bruising turf battles in Congress among agencies and rival industry groups that benefit from the current regulations.
Administration officials acknowledged on Friday that they did not expect the proposal to become law this year, but said they hoped it would help frame a policy debate that would extend well after the elections in November.
In a nod to the debacle in mortgage lending, the administration proposed a Mortgage Origination Commission to evaluate the effectiveness of state governments in regulating mortgage brokers and protecting consumers.
The bulk of the proposal, however, was developed before soaring mortgage defaults set off a much broader credit crisis, and most of the proposals are geared to streamlining regulation.
This plan would consolidate a large number of regulators into roughly three big new agencies.
Bank supervision, now divided among five federal agencies, would be led by a Prudential Financial Regulator, which could send examiners into any bank or depository institution that is protected by either federal deposit insurance or other federal backstops. It would eliminate the distinction between “banks” and “thrift institutions,” which are already indistinguishable to most consumers, and shut down the Office of Thrift Supervision.
Any effort to merge the Commodity Futures Trading Commission with the S.E.C. is likely to provoke battles.
Yet another proposal would, for the first time, create a national regulator for insurance companies, an industry that state governments now oversee.
Administration officials argue that a national system would eliminate the inefficiencies of having 50 different state regulators, who have jealously guarded their powers and are likely to fight any federal encroachment.
Arthur Levitt, a former S.E.C. chairman who has long pushed for stronger investor protection, said his first impression of the plan was positive. Even though the S.E.C.’s powers might be reduced, Mr. Levitt said, the plan would create a broader agency to regulate business conduct in all financial services.
“It’s a thoughtful document,” he said. “I’m intrigued by the fact that it puts an emphasis on investor protection, and that it establishes an agency specifically for that purpose, which would operate across all markets. I think that’s a very constructive first step.”
An interesting article in yesterday's New York Times:
Treasury Dept. Plan Would Give Fed Wide New Power
By EDMUND L. ANDREWS
WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.
The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.
Democratic lawmakers are all but certain to say the proposal does not go far enough in restricting the kinds of practices that caused the financial crisis. Many of the proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation.
According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.
While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.
The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings.
The plan would give the Fed some authority over Wall Street firms, but only when an investment bank’s practices threatened the entire financial system.
And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security.
Parts of the plan could reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors. The plan would merge the S.E.C. with the Commodity Futures Trading Commission, which regulates exchange-traded futures for oil, grains, currencies and the like.
The blueprint also suggests several areas where the S.E.C. should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets.
The proposal began last year as an effort by Henry M. Paulson Jr., secretary of the Treasury, to make American financial markets more competitive against overseas markets by modernizing a creaky regulatory system.
His goal was to streamline the different and sometimes clashing rules for commercial banks, savings and loans and nonbank mortgage lenders.
“I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years,” Mr. Paulson will say in a speech on Monday, according to a draft. “I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible.”
Congress would have to approve almost every element of the proposal, and Democratic leaders are already drafting their own bills to impose tougher supervision over Wall Street investment banks, hedge funds and the fast-growing market in derivatives like credit default swaps.
But Mr. Paulson’s proposal for the Fed echoes ideas championed by Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee.
Both see the Fed overseeing risk across the entire financial spectrum, but Mr. Frank is likely to favor a stronger Fed role and to subject investment banks to the same rules that commercial banks now must follow, especially for capital reserves.
The Treasury plan would let Fed officials examine the practices and even the internal bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the overall financial system.
That would be a significant expansion of the central bank’s regulatory mission.
When Fed officials agreed this month to rescue Bear Stearns, once the nation’s fifth-largest investment bank, they pointedly noted that the Fed never had the authority to monitor its financial condition or order it to bolster its protections against a collapse.
In two unprecedented moves, the Fed engineered a marriage between JPMorgan Chase and Bear Stearns, lending $29 billion to JPMorgan to prevent a Bear bankruptcy and a chain of defaults that might have felled much of the financial system.
For the first time since the 1930s, the Fed also agreed to let investment banks borrow hundreds of billions of dollars from its discount window, an emergency lending program reserved for commercial banks and other depository institutions.
But Mr. Paulson’s proposal would fall well short of the kind of regulation that Democrats have been proposing. Mr. Frank and other senior Democrats have argued that investment banks and other lightly regulated institutions now compete with commercial banks and should be subject to similar regulation, including examiners who regularly pore over their books and quietly demand changes in their practices.
In a recent interview, Mr. Frank said he realized the need for tighter regulation of Wall Street firms after a meeting with Charles O. Prince III, then chairman of Citigroup.
When Mr. Frank asked why Citigroup had kept billions of dollars in “structured investment vehicles” off the firm’s balance sheet, he recalled, Mr. Prince responded that Citigroup, as a bank holding company, would have been at a disadvantage because investment firms can operate with higher debt and lower capital reserves.
Senator Charles E. Schumer, Democrat of New York, has taken a similar stance.
“Commercial banks continue to be supervised closely, and are subject to a host of rules meant to limit systemic risk,” Mr. Schumer wrote in an op-ed article on Friday in The Wall Street Journal. “But many other financial institutions, including investment banks and hedge funds, are regulated lightly, if at all, even though they act in many ways like banks.”
Mr. Paulson’s proposal is likely to provoke bruising turf battles in Congress among agencies and rival industry groups that benefit from the current regulations.
Administration officials acknowledged on Friday that they did not expect the proposal to become law this year, but said they hoped it would help frame a policy debate that would extend well after the elections in November.
In a nod to the debacle in mortgage lending, the administration proposed a Mortgage Origination Commission to evaluate the effectiveness of state governments in regulating mortgage brokers and protecting consumers.
The bulk of the proposal, however, was developed before soaring mortgage defaults set off a much broader credit crisis, and most of the proposals are geared to streamlining regulation.
This plan would consolidate a large number of regulators into roughly three big new agencies.
Bank supervision, now divided among five federal agencies, would be led by a Prudential Financial Regulator, which could send examiners into any bank or depository institution that is protected by either federal deposit insurance or other federal backstops. It would eliminate the distinction between “banks” and “thrift institutions,” which are already indistinguishable to most consumers, and shut down the Office of Thrift Supervision.
Any effort to merge the Commodity Futures Trading Commission with the S.E.C. is likely to provoke battles.
Yet another proposal would, for the first time, create a national regulator for insurance companies, an industry that state governments now oversee.
Administration officials argue that a national system would eliminate the inefficiencies of having 50 different state regulators, who have jealously guarded their powers and are likely to fight any federal encroachment.
Arthur Levitt, a former S.E.C. chairman who has long pushed for stronger investor protection, said his first impression of the plan was positive. Even though the S.E.C.’s powers might be reduced, Mr. Levitt said, the plan would create a broader agency to regulate business conduct in all financial services.
“It’s a thoughtful document,” he said. “I’m intrigued by the fact that it puts an emphasis on investor protection, and that it establishes an agency specifically for that purpose, which would operate across all markets. I think that’s a very constructive first step.”
Friday, February 8, 2008
30 Billion And Dropping
By Mark Brousseau
During a presentation at this week’s BAI TransPay conference at the Gaylord Texan Resort & Convention Center in Grapevine, TX, Richard Oliver, executive vice president, Retail Payments Office at the Federal Reserve Bank, provided key results of the Fed’s latest three-year study of non-cash payments. The information helps define the markets for vendors, a leading provider of distributed capture solutions told me today. Oliver said there were about 30 billion checks written in 2006. The breakdown:
51 percent of the checks were written by consumers
... 32 percent of these were consumer to business remittance checks
... 6 percent were consumer to business remittance at point of sale (remote remittance)
... 13 percent were consumer to business point of sale (Back Office Conversion eligible)
25 percent of the checks were written by businesses to other businesses (includes governments)
... 16 percent were business to business (wholesale remittance)
... 5 percent were business to business remittance at point of sale
... 3 percent were business to business point of sale
17 percent of the checks were business to consumer (payroll, refunds, etc.)
7 percent were consumer to consumer casual
Note: the numbers don't add up to 100 percent because of Federal Reserve Bank rounding. Another key statistic that Oliver provided was that 2.6 billion checks were converted to ACH in 2006.
What do you think? E-mail me at m_brousseau@msn.com.
During a presentation at this week’s BAI TransPay conference at the Gaylord Texan Resort & Convention Center in Grapevine, TX, Richard Oliver, executive vice president, Retail Payments Office at the Federal Reserve Bank, provided key results of the Fed’s latest three-year study of non-cash payments. The information helps define the markets for vendors, a leading provider of distributed capture solutions told me today. Oliver said there were about 30 billion checks written in 2006. The breakdown:
51 percent of the checks were written by consumers
... 32 percent of these were consumer to business remittance checks
... 6 percent were consumer to business remittance at point of sale (remote remittance)
... 13 percent were consumer to business point of sale (Back Office Conversion eligible)
25 percent of the checks were written by businesses to other businesses (includes governments)
... 16 percent were business to business (wholesale remittance)
... 5 percent were business to business remittance at point of sale
... 3 percent were business to business point of sale
17 percent of the checks were business to consumer (payroll, refunds, etc.)
7 percent were consumer to consumer casual
Note: the numbers don't add up to 100 percent because of Federal Reserve Bank rounding. Another key statistic that Oliver provided was that 2.6 billion checks were converted to ACH in 2006.
What do you think? E-mail me at m_brousseau@msn.com.
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