New Account Structure and Accounting Services

To the Chief Operating Officers at All Depository
Institutions in the Second Federal Reserve District:

In correspondence sent to you in May 1996, the Federal Reserve announced plans to modify its accounting services, effective January 1998, primarily to accommodate the newly identified accounting needs of the nationwide banking community in an interstate branch banking environment. Further information was sent in June 1996 in the form of questions and answers on the new account structure. We note, however, that the relevance of these planned changes to U.S. agencies and branches of foreign banks and Edge and agreement corporations is still being evaluated. This circular provides more detailed information on the planned changes in our accounting systems, some of which may also be useful to a depository institution (DI) that does not have or plan an interstate presence.

The most significant change involves the implementation of a new single (master) account structure, under which a DI will be provided with one "master" account at a designated Reserve Bank, in which all debits and credits arising from financial transactions with any Reserve Bank will be settled. In addition, a master account may have one or more related subaccounts established at any one or more Reserve Banks, in which information on any defined subset of financial transactions may be recorded, segregated and statemented. All subaccount transactions will settle in their related master account. Subaccounts will not carry balances, but will contain totals of debits and credits, and thus would be conceptually similar to today's respondent accounts with which you may be familiar.

Implementation of the new account structure has required major enhancements to the three Federal Reserve accounting automated systems described briefly below:

• Integrated Accounting System (IAS) - Records all detail and/or summarized accounting transactions affecting a DI's balance and provides an accounting statement and/or reconcilement file to each DI daily; also provides inquiry capabilities to enable an on-line DI to monitor intraday the posting of non-Fedwire transactions to its account.

• Account Balance Monitoring System (ABMS) -- Provides inquiry capabilities to enable an on-line DI to monitor intraday the effect of both Fedwire and non-Fedwire transactions on its account balance.

• Billing System-Records volumes and charges associated with a DI's use of Federal Reserve priced services and provides each DI with a monthly statement of service charges prior to the assessment of these charges on the 15th day (or next business day) of the month following the month in which the services were used.

The summary descriptions of the changes being made to each of these three systems in support of the new master account/subaccount structure is included in yhis document. A Federal Reserve contact is provided on each of these descriptions for further information or clarification. We direct your attention to the need to plan for testing with us, as discussed in the ABMS summary, if you want to make use of the enhanced services being made available for this system.

We would also like you to know that an overview of the new account structure on a 14-minute video tape, as well as a more detailed presentation in a 27-page glossy magazine format, are available by calling your Account Manager or any one of the contact names on the summaries. This communications material should provide sufficient information about the new account structure for the majority of the DIs in our District. However, we are prepared to present more detailed information at seminars, which can be scheduled based on the needs expressed by the DIs. If you feel a need for more information and would like to attend a seminar, please contact your Account Manager.

Integrated Accounting System

The Integrated Accounting System (IAS) provides DIs with a variety of statements, reports and inquiry capabilities to help manage their account balances. Changes to the daily accounting statements, reports and features in support of the new account structure are described below:

Statement of Account

• DIs can receive a statement of subaccount activity settling in the master account.

• DIs can receive information on any of their respondents linked to a subaccount.

• Subaccount reports will include only debit and credit totals - NO balances.

Reconcilement File

• No changes made to file format, but identification of respondent and intermediate respondent ABA numbers have changed.
• Information on subaccounts and respondents is presented in the same manner.
• Optional file available for subaccounts.

On-Line IAS/PSR Inquiry

• Subaccounts may inquire into their own activity.
• When authorized by the master account, a subaccount may inquire into the combined totals of activity of the master account and all of its related subaccounts and respondents.

If you have any questions regarding any of these changes to IAS, please contact Carol Hesse or Mike Ludwig .

---

The Account Balance Monitoring System (ABMS) provides on-line DIs with account information for Fedwire and non-Fedwire transactions. With the enhanced services that will be available in January 1998, the combined total of the master account and its subaccount(s) - a Master Report -- can be viewed; or the master account and each of its subaccount(s) can be viewed separately -- a Self Report. DIs can perform inquiries for the master account and for subaccounts by using the master account Routing Transit Number (RTN), and selecting the Balance Report for the "Master". A master account holder can view a balance without subaccounts by inquiring on the master account RTN and selecting the Balance Report for "Self". Subaccounts can be viewed separately by inquiring on the subaccount RTN and selecting the Balance Report for "Self".

• The report type, either Master or Self, is displayed.
• The inquiring RTN is displayed.
• The RTN associated with the reported data is displayed.
• A new Status Column, reflecting the time or the date of the last update by transaction type, is displayed.

In addition, the Master Report will display the cumulative Memo Post, Net Debit Cap, Funds Collateral, Securities Collateral, and the Daylight Overdraft or Account Balance information.

Fedline DIs will receive software from the Federal Reserve to support these changes prior to the implementation date. Computer Interface Protocol Specifications (CIPS) detailing the specific enhancements will be distributed to Computer Interface DIs in the next few weeks. The ABMS software to support Interstate Branching will be available for testing with DIs in the Federal Reserve test environment in the fall. Computer Interface DIs will have some time after the January 2, 1998, implementation date to convert to the new software. We will require all Computer Interface DIs to test with us prior to converting. As we get closer to the fall, we will announce a schedule of test environment availability, and the date by which Computer Interface DIs must convert to the new software.

If you have questions regarding ABMS or testing of the new software, please contact James Coffey or Joe Marraccino.

---

The Billing application is being modified to support the new single account structure under Interstate Branch Banking. Service charges for a subaccount will automatically settle in the master account. A master account can have respondents and subaccounts. The settlement relationship between a correspondent and respondent will not change.

The following summarizes the changes under the new account structure as well as several new features available to customers in January 1998:

• Greater Flexibility in the Settlement of Customer Service Charges

The service charges for a master account (together with its respondents' and/or subaccounts' service charges) may settle in a correspondent's account.

DIs will have the option of allowing a subaccount's (and any of its respondent(s)') service charges to follow any settlement option defined for the master account.

• Greater Flexibility in the Application of Earnings Credits

The earnings credits of a master account will automatically be used to satisfy service charges of a subaccount.

A correspondent may choose which of its respondents may use its earnings credits.

• Consistency with other Federal Reserve Statements

Statements will be converted to a portrait (vertical) format. This will facilitate printing of statements on a Fedline terminal.

New Customer Statement Options

Delivery of statements via FED-Mail (fax).

Availability of respondent and subaccount totals by service area on the summary statements for correspondents and master account holders.

If you have questions regarding these changes to Billing statements or settlement of service charges, please contact Mike Falkowski or Ben Annoscia.

Contact:
Public Affairs
(212) 720-6130
general.info@ny.frb.org