Student Loan Subsidy Bill Signed into Law

WASHINGTON - President Clinton on Friday signed legislation that changes the way the federal government calculates subsidies for student loans, a move that lenders say will make it easier to manage their interest rate risk.Sallie Mae and lenders strongly supported the student loan provision, which ties federal subsidies to interest rates on commercial paper instead of to Treasury bill rates. The Education and Treasury departments opposed the amendment, saying it would yield lenders a windfall of as much as $1.7 billion. The measure will expire in three years.

The bill included tax relief for foreign subsidiaries of financial services companies. For the past two years, banks, securities firms, and insurance companies have been able to postpone taxes on some income from international units until the earnings are repatriated. The law will extend through 2001 the tax deferment, which was due to expire this month.

The student loan and tax measures were part of a compromise bill to help the disabled.

- Dean Anason

Private Sector Factor Soaring 66% in 2000

WASHINGTON - The Federal Reserve's Private Sector Adjustment Factor, which figures in Fed wire and automated clearing house pricing to depository institutions, has been increased to $192.6 million in 2000, a jump of 66% from the current year's calculation.The increase is a result of a change in how the Fed calculates the effect of employee pension assets and benefits liabilities. Private Sector Adjustment Factor, or PSAF, is a calculated number used by the Fed to keep its prices in line with the general market.

It factors in additional costs incurred by private sector competitors. As a public provider of services, the Fed does not pay for insurance premiums, tax payments or finance costs, so PSAF, included in the Monetary Control Act of 1980, is a way of to keep Fed prices competitive.

The $192.8 million figure is the amount the Fed will need to recover in addition to its actual operating expenses, and it is an important tool used to assess prices charged to banks for use of check and electronic funds transfer services, among other services.

The PSAF won't result in higher prices in the near term, said Louise Roseman, director of Reserve Bank Operations and Payment Systems. She said Fed Wire and automated clearing house prices will decline slightly in 2000, in part because of "substantial cost efficiencies we are getting from those services," she said.

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