Proposed Modification of PSAF and NICB Calculation - Circulars

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Circular

Proposed Modification of PSAF and NICB Calculation

January 8, 2001

Circular No. 11306

To All Depository Institutions in the Second Federal Reserve District:

On December 21, 2000, the Board of Governors of the Federal Reserve System issued a press release proposing a modification in the method used to calculate the private sector adjustment factor (PSAF) and net income on clearing balances (NICB).

The PSAF imputes the costs that would have been incurred, and profits that would have been earned, had the Reserve Banks' priced services been provided by a private firm.

The NICB imputes income on the investment of depository institutions' clearing balances held with the Reserve Banks, less related costs.

Comments are requested by April 6, 2001. The proposal (pdf - 160kb) was published in the Federal Register of December 28, 2000. Comments should be submitted to the Board, by mail or electronically, as specified in the notice.

Separately, in the last paragraph of the press release, the Board makes available a related research paper proposing a new approach for calculating the cost of equity capital used in the PSAF.

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