WASHINGTON - The Federal Reserve Board voted Wednesday to discontinue its securities safekeeping service in 1993, citing high costs and falling demand.
The move was expected, as the Fed had indicated it was reevaluating some of the fee-based services it provides to banks.
The Fed governors also approved formal criteria for future decisions on discontinuing services. But they said the actions do not portend withdrawal from other priced services, such as check clearing and wire transfers.
A Fed First
"At this time there are no other product lines being considered for withdrawal," said Governor Edward W. Kelley.
The Fed had never before dropped a priced service. It decided that storage of stock and bond certificates is growing obsolete as more and more securities are issued in book-entry form. The Fed's volume of definitive safe-keeping business declined 65% between 1987 and 1991.
As demand declined, the Fed struggled o cover its costs. This year, the Fed estimated that fees covered just 80.2% of costs.
Critics have long complained about the Fed's dual role as bank regulator and competitor. Fed advocates have said it has been able to ensure reliable, low-cost operating services for all.
In deciding whether to discontinue business lines, the Fed will assess profitability, the availability of private-sector alternatives, the impact of withdrawal on other Fed services and responsibilities, and the public benefits of continuing.
The Fed estimated its 1992 revenue from priced services will be $761.1 million, up from $745.1 million in 1991. Next year, the Fed projects collecting $773.3 million, covering 99.1% of the costs of providing the services.