The Fed Unveils More Check Closures As Volumes Continue to Drop

With electronic payments continuing to eat into paper check volumes, the Federal Reserve Banks announced on Wednesday another in what has become a series of closures of check-processing facilities. Some time next year or in the first six months of 2008, the Fed will shut down check processing in San Francisco, Kansas City, Mo., and Helena, Mont., a move that will reduce to 18 the number of Fed processing offices nationwide. That number has shrunk from 45 since 2003 as a result of three earlier waves of facility shut-downs. Some 23 Fed offices currently process checks, a number scheduled to fall to 21 as a result of a previously announced pair of closures. The Fed, which last year handled 11 billion checks, or almost one-third of the nation's check traffic, has not yet determined exact dates for the closures just announced. As with the previous announcements, this latest one envisions an effort to realize economies on a shrinking base of paper. The San Francisco operation will shift to Los Angeles, the Fed announced, while the Kansas City and Helena volumes will move to St. Louis and Denver, respectively. The central bank says moving check processing out of the Helena facility will affect a Canadian check-collection service provided by that office. It says it will announce by the end of the year the Reserve Bank to which this service will be shifted. At the same time, the Fed says it will stop check-adjustment operations (the handling of check-processing errors) at its offices in Detroit; Helena; Houston; Memphis, Tenn.; and San Francisco. All told, the moves will eliminate approximately 280 jobs, the Fed says, or about 8% of its total staff devoted to check operations. It will add about 150 people to the locations that will be adding volume as a result of the moves. The Fed's latest study showed 37 billion checks were paid in the U.S. in 2003, compared to 42 billion in 2001 and 50 billion in 1995. Estimates from Global Concepts Inc., an Atlanta-based consultancy, indicate this number fell to 34 billion in 2004. The firm projects this volume will drop to 26 billion by 2009. Check volume has been steadily losing so-called wallet share to credit and debit cards. At the same time, electronic conversion of checks to electronic funds transfers through the automated clearing house and the recent moves by banks toward image exchange have further eroded the volume of checks paid. Apparently, the moves to consolidate check operations are paying off for the Fed in the face of declining volumes. For the first time in several years, the Reserve Banks earned enough check revenue in 2005 to more than cover the actual and imputed costs of processing checks for client institutions and to exceed their profit target.