By DEBRA COPE
WASHINGTON -- The Federal Reserve Board on Wednesday unveiled the criteria it plans to use in evaluating whether to discontinue some of the operating services it often to banks.
The guidelines, which were expected, take into account whether adequate alternatives would be available to users if the Fed discontinued any particular service.
The Fed would also consider how a pullback would affect its ability to provide other services and to influence the payments system.
Safekeeping Will Go First
The policy initially would apply to only one current service: the storage of stock and bond certificates. The Fed proposed Wednesday pulling out of that small, money-losing business by the end of next year.
Governor Edward W. Kelley emphasized that the board has no current plans to withdraw from any other service, including the processing of checks and wire transfers.
However, Mr. Kelley added, the Fed is developing an analytical framework for evaluating future proposals to drop services because "out in the future it's reasonable to contemplate that there will be such withdrawals."
He said the criteria would be used" over-time, when and as needed" to ensure that policies are applied consistently.
The Criteria
When considering whether to drop services, the Fed said it will consider:
* Whether other providers could adequately meet demand if the Fed bowed out of providing a particular service.
* If not, whether suitable substitute services could be found.
* Whether the Fed's ability to provide other services would be undermined if a particular service were discontinued.
* Whether the Fed's ability to discharge its other responsibilities would be hampered.
* Whether the public benefits of continuing to provide a service would outweigh the reasons for discontinuing it.
The criteria for future withdrawals are to be issued for 60 days' public comment once some revisions suggested at Wednesday's board meeting have been drafted.
Pricing Questions
The revisions discussed by the board members fell into two categories: How should the Fed price services while it is withdrawing from them? And should the Fed exit quickly from money-losing services, or price its products to let the business run off?.
"We may want to ask for guidance as to how we withdraw," said Fed Governor Wayne Angell. He appeared to be torn between just announcing that the Fed would no longer offer the stock and bond safekeeping business, and pricing the service in such a way as to let the business run off.
Mr. Kelley disagreed. "We're talking here about a proposal to withdraw, not to force a withdrawal by our customers."
But Mr. Angell wasn't assuaged. He said the Fed has a special responsibility to serve banks that have come to rely on its services.
"There has to be a less abrupt approach than sending a notice to people who've had their securities in our vault for 25 years and saying, `We're no longer going to be here,'" Mr. Angell said.
The debate also touched off a broader discussion of whether the Fed's current techniques for pricing services could be improved.
The Monetary Control Act of 1980 requires the Fed to recover the costs it incurs in providing services to depository?institutions through pricing.
But Fed Governor Lawrence B. Lindsey suggested that the Fed should start to look at its service lines through the eyes of the marketplace.
"How would the market decide who drops out of this business?" Mr. Lindsey said. "If [all competitors] have similar costs, how should we sort out whether we're the one who should go out of business?"
Elaborating in a telephone interview, Mr. Lindsey said there might be a variety of ways of pricing" services that the Fed hasn't yet considered. He said he wants the Fed to gather more information about pricing from service users, and from competitors.
"If we were purely a privatesector entity, we would make a decision purely on whether profitability is possible long term," Mr. Lindsey said.
"There are many ways of measuring whether it's a profitable activity - not only on the cost structure side, but also on the pricing structure side," he added.
The service that the Fed is dropping, known as "definitive safekeeping," is growing obSolete as more and more securities are issued in book-entry form. The Fed proposed to phase out the service by the end of 1993, and said it would seek public comment on whether to offer the service at a below-cost price until then.
