To All Depository Institutions and Others
Concerned in the Second Federal Reserve District:
The Federal Reserve Banks will stop providing services to depository institutions for the collection and processing of definitive municipal securities. The Reserve Banks will accept items for deposit until September 30, 2005. Withdrawal from the noncash collection service will be completed by December 30, 2005. The Federal Reserve Board recently approved the termination of the service.
Definitive municipal securities are registered or bearer bonds that have been issued by state and local governments with interest coupons in certificated, or physical, form. Municipal bond and coupon volume has been declining since the passage of the Tax Equity and Fiscal Responsibility Act of 1982, which effectively eliminated the issuance of municipal bearer bonds. The noncash collection service is provided centrally by the Jacksonville Branch of the Federal Reserve Bank of Atlanta and represented less than 0.2 percent of the Reserve Banks' total priced financial services costs in 2004.
The withdrawal from this service is prompted by the declining volume of definitive municipal securities, the Reserve Banks' expected underrecovery of costs for providing the service in future years, and the availability of reasonable private-sector alternatives. With the exit of the Reserve Banks, depository institution customers of the noncash collection service could instead use a private-sector service provider, such as the Depository Trust Company or a correspondent bank, to collect their definitive municipal bonds and coupons or could present these items for payment directly to the paying agent.
Stephanie A. Heller
Counsel and Vice President