Fed Banks Update Check Systems

Several Federal Reserve banks are investing in new communications hardware and software to cut costs in their check processing operations.

The so-called channel extension technology enables a mainframe storing debit and credit information and check-sorting patterns to operate such equipment as check reader/sorters from hundreds of miles away.

Channel extenders "fool the mainframe" into thinking the reader/sorters are close by, said Harold Shewmaker, manager of the Omaha branch of the Kansas City Federal Reserve Bank.

Using this technology, a Fed bank will be able to phase out multiple computers in its offices, consolidating operations in a data center.

Actual check sorting will continue to take place in each branch office, so posting schedules will not be affected.

Three Fed Banks Involved

Fed banks in the San Francisco, Dallas, and Kansas City districts are in the process of moving to this technology. Kansas City will begin testing remote processing with its Denver branch in August.

The Atlanta and St. Louis banks are said to be considering the technology.

"All our competitors have done this," said Mr. Shewmaker, of the Kansas City Fed. Norwest Bank has done it, Bank IV out of Kansas has done it -- a number of check shops have separated the software instructions from the physical processing."

The Kansas City Fed expects to complete the consolidation by September 1992.

Fewer Data Centers

Mr. Shewmaker said the consolidation will make it easier for the Kansas City bank to move software again as the Fed system consolidates over the next few years.

The Fed plans to reduce the number of processing centers from 11 to two, three, or four. It declined to estimate how much the move to channel extension technology would reduce costs.

The Fed banks can eliminate computers and some personnel at the check processing centers. But each facility will retain the paper checks and reader/sorter equipment so the Fed can deliver checks quickly and posting schedules will not be affected.

Software tells the reader/sorters how to sort checks according to different customer requirements.

The Kansas City Fed will phase out six midrange computers in three branch offices.

The check-sorting software they now use will be moved to an International Business Machines Corp. mainframe computer in the Kansas City data center.

In the IBM environment, mainframes must be located within a specified distance in order to operate attached equipment.

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