The Federal Reserve System's effort to streamline its correspondent banking services is making it easier - and cheaper - for large correspondent banks to do business in states far from home.
The move could put multistate banks on a par with local correspondent competitors that often have a leg up in doing business with community banks.
As a result, a large correspondent bank can operate with the same Fed products across many states, reducing paperwork and, ultimately, cost.
"It certainly will help the banks who operate in multiple (Fed) districts, since we'll be using one common platform and one common system," said Ray E. Podraza, vice president of product management at Boatmen's Bancshares in St. Louis. "We're starting to see the benefits."
Starting last week, for example, the Fed began allowing a bank to take checks drawn on city-based banks anywhere in the country, bundle them together, and take them to any Fed district bank, as opposed to parceling them among different Fed banks as before.
At about the same time, the Fed also initiated an account system in which banks can consolidate all their reserve accounts from different Fed districts into a master account in one district. This account can handle all credits and debits throughout the Fed system.
The Federal Reserve has been developing a national delivery strategy since early last year that would blur distinctions among the 12 district banks.
The development comes as interstate banking and branching make state borders and Fed district lines all but obsolete.
"What we're trying to do is have a national view of our services," said Paul M. Connolly, chief operating officer of the Boston Fed and national product director for retail payments.
The goal is to improve the national payments system while satisfying large correspondent banks' desire for consistency of procedures and products throughout their service areas, regardless of district lines.
Mr. Connolly said the Fed wants to "preserve that local responsiveness," while offering "a more consistent national face to the banks who are increasingly operating across district lines."
Although Fed banks compete with correspondent banks in check processing and other services, the streamlining is expected to benefit large correspondent banks more than anyone else, Mr. Connolly said. That's because the changes could make it easier and cheaper to do business across district boundaries.
"The banks with whom we do have competition are also our biggest customers," he said.
This development is likely to help large correspondents in their competition with smaller, local correspondent banks.
"It will make the system more homogeneous and would give the large banks more clout and make it a little more difficult for we smaller correspondents to carve out a niche," said Helge S. Christensen, president and chief executive of the Bankers Bank, Madison, Wis.
"To have a common processing environment will be a big help to" the large correspondents, said Mr. Christensen. "It will add a lot of planning consistency to their operation.
"If we're all going to be offering the same product, and if the product differentiation is the only reason a bank would do business with us versus Firstar, then it changes the way we would have to sell."
But larger banks say they're not sure how much impact the Fed streamlining will really have. That's in part because many must still operate large courier networks to Fed district banks around the country for other purposes, said Don Thorvilson of Norwest Corp., Minneapolis.
In fact, he said, the changes could make it easier for smaller correspondent banks to use the Fed to deposit their checks, instead of turning to larger correspondents for their courier networks.
