Fed Trims Rates on Some Funds Transfers

The Federal Reserve has cut prices on some electronic funds transfers, and says the cuts are evidence that its operational consolidation is saving money.

The charge to banks for interregional automated clearing house transactions has been lowered to 1 cent per item, from 1.2 cents. Further, the per-item charge for presorted automated clearing house payments - in which the sending bank performs some of the processing tasks - has been lowered 10%, to 0.9 cents.

The Fed also has extended automated clearing house deadlines, which let banks originate payments, such as direct deposit of payroll and corporate tax remittances, later in the day.

Collectively, these changes will save the industry $7.1 million annually, said Paul Connolly, first vice president and product director of retail payments services at the Federal Reserve Bank of Boston.

"I call these price reductions a dividend," Mr. Connolly said. "We put in a lot of work over the years to try to have a more efficient, less costly automation infrastructure for payments processing."

Since 1991 the Fed has been centralizing the processing, accounting, and payment services of its 12 regional banks. All processing has now been shifted from the regional Fed operating centers to a site in East Rutherford, N.J. (The New York Fed was the last to move its processing there, in late August.)

George Thomas, senior vice president at the New York Clearing House, said the Fed's sharing the savings is a gesture of good will.

Although the effect on individual banks is nominal, the price cuts are nonetheless "a win for the financial institutions," he said.

Bankers welcomed the news, but also noted that the cuts may have been spurred in part by competition from private sector initiatives such as the Private Sector ACH Exchange, or Pax. Pax is an alliance between the Arizona Clearing House Association, the New York Clearing House, and Visanet ACH Services.

"We are all for the lower pricing," said Steven Bernstein, vice president of Chase Manhattan Corp. However, Chase "will always go to the most efficient and lowest-cost provider," which is still in the private sector, he said.

"We feel competition is healthy," he said. "We hope the Fed continues to lower their pricing."

Chase is the largest originator of automated clearing house payments. It is expected to send more than 310 million transactions this year, 20% of which will travel over Pax, Mr. Bernstein said.

Experts said private sector automated clearing house operators process about 20% of all commercial volume, with the Fed handling the rest.

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