Federal Reserve Bank Services Imputed Investment Income on Clearing Balances

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The Board has approved modifications to the method for imputing priced-service income from clearing balance investments. The Federal Reserve Banks impute this income when setting fees and measuring actual cost recovery each year. The Reserve Banks will impute the income from clearing balance investments on the basis of a broader portfolio of investments than used previously, selected from those available to banks. The Reserve Banks will impute an investment return expressed as a constant annual spread over the rate used to determine the cost of clearing balances. The constant annual spread will be determined based on an underlying imputed investment portfolio. Selection of the portfolio investment mix will be subject to a risk- management framework that includes criteria consistent with those used by banks, bank holding companies, and regulators in evaluating investment risk. The revised method will be used to impute investment income on clearing balances beginning in January 2004.