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."