Summary: Pursuant to a congressional request, GAO reviewed the Federal Reserve System's check collection services, focusing on: (1) its banking operations compared to those in the private sector; (2) efforts to reduce its competitive advantage over private-sector banks regarding check presentment and associated fees; and (3) cost recovery activities and how proposed accounting changes might affect them.
GAO found that: (1) the Federal Reserve's mandated exemption from presentment fees on same-day payments gave it an unfair competitive advantage over private-sector banks; (2) the Federal Reserve Board of Governors was developing a payment proposal for extending same-day payment rights to the private sector, and was revising associated price and service procedures; (3) a proposed direct settlement service intended to equalize presentment practices would instead perpetuate the Federal Reserve's noncompetitive position by increasing private banks' dependence on its presentment services; (4) although some banking officials argued that charging higher presentment fees later in the day would increase check processing efficiency, presentment policy evaluation was a more feasible and equitable approach to improving check collection operations; (5) 7 of the 12 Federal Reserve banks did not fully recover collection costs in 1988, primarily because they did not anticipate the expense of instituting a mandated direct return service; and (6) the Federal Reserve revised its check counting methodology for imputing deposit insurance premium costs to make its procedures more comparable with private-sector banks'.
