The Fed Plans More Closures As Check Volumes Slide

Having already announced last year its plan to shutter 13 check-processing facilities by the end of 2004, the Federal Reserve now says in a statement released this week it plans further closures. The announcement from the Fed does not indicate how many locations might be affected, nor is it specific as to the timing of the action. “Currently, the Reserve Banks are examining their existing check facilities and within the next few months will announce the discontinuation of some additional check-processing facilities through 2005,” the statement says. The closure of the 13 facilities announced last year was to bring the number of Fed check-processing locations down to 32. The statement attributes the latest decision to an accelerating drop in the volume of paper checks. The Fed says its check volume is falling even faster than the 5% rate of decline it says it experienced in 2003. The Fed, along with most other experts, expects this trend to continue as consumers and retailers increasingly rely on cards and the automated-clearing house to process transactions. At the same time, banks are preparing for increasing volumes of digital check images to flow across image-exchange networks after the Check Clearing for the 21st Century Act (Check 21) takes effect in October. “This shift is good for consumers and good for the financial services industry, and the Fed has encouraged this evolution for a number of years” Gary Stern, president of the Minneapolis Fed, said in the statement. “As the payments system moves to accommodate more electronic options, the Fed will embrace a strategy that will respond to the marketplace as necessary.” According to numbers released recently by the Fed, the volume of checks it processed dove nearly 6% in the first quarter to 3.64 billion, the second biggest quarterly drop in the past 15 years (Digital Transactions News, June 10). The Fed is now processing the smallest volume of checks recorded since 1989. Meanwhile, debit card transactions secured by signatures and personal identification numbers grew nearly 20% last year, while electronic checks through the ACH ballooned 154%.