| October 17, 2003
|Circular No. 11548|
To All Depository Institutions and Others Concerned in the Second Federal Reserve District:
In a press release, the Federal Reserve Board requested comment on proposed changes to its cash services policy. The changes would address a shift by depository institutions away from traditional patterns of currency activity toward greater reliance on Reserve Bank cash processing and provide incentives for depository institutions to recirculate currency among their customers.
To reduce depository institutions' overuse of Reserve Bank cash-processing services that are provided at no charge, the Board proposes revising its cash services policy by adding two elements:
(1) a custodial inventory program that provides an incentive to depository institutions to hold currency in their vaults to meet customers' demand; and
Initially the policy changes would apply only to the $5, $10, and $20 denominations. The Reserve Banks estimate that the proposed changes would affect approximately 100 of their largest cash customers.
The Board proposes to implement the recirculation policy in phases. In early 2004, the Reserve Banks will accept applications for a custodial inventory proof-of-concept, or trial, program. The Board will evaluate the results of the program after about six months of operation and will decide whether to implement a permanent custodial inventory program in 2005. Reserve Banks would begin assessing the recirculation fee in 2006. In 2007, the Board would extend the recirculation policy to one-dollar notes if the Reserve Banks are unable, by working collaboratively with depository institutions, to achieve significant savings.
The Board requests comment by January 15, 2004. Details on sending the comments are provided in the notice from the Board or the Federal Register.
Questions on this matter may be directed at this Bank to Joseph P. Botta, Senior Vice President or Felicia Wiggin,Vice President, Cash and Custody Function.
Carl W. Turnipseed