Circular
Board Modifies Methodology to Calculate Private Sector Adjustment Factor
October 12, 2005
Circular No. 11742

To All Depository Institutions and Others Concerned
in the Second Federal Reserve District:

The Federal Reserve Board has announced modifications to the methodology used to calculate the private sector adjustment factor (PSAF), which is used in setting fees for certain payment services provided to depository institutions.

The methodology underlying the PSAF is reviewed periodically to ensure that it is appropriate and relevant in light of changes that may have occurred in Reserve Bank priced-services activities, accounting standards, finance theory, and regulatory and business practices.

Beginning with the 2006 price setting, the Board will use only a capital asset pricing model (CAPM) to determine a return on equity (ROE) that reflects the return earned by private-sector service providers. Previously, the ROE was calculated by averaging the results of three analytical models, including the CAPM. The CAPM ROE will be based on the rate of return of the overall market, as opposed to the long-standing practice of identifying a priced-services peer group.

Press release OFFSITE
Board's notice OFFSITE PDF