FOR YOUR INFORMATION..............................March 20, 1991


      FTC STAFF SUGGESTS THE FED FURTHER EXPLORE COST BASIS
           FOR ITS CHECK TRANSPORTING CHARGE PROPOSAL


     Bureau of Economics staff at the Federal Trade Commission
have recommended that the Federal Reserve System (FRS) determine
the actual costs of transporting bundled and pre-sorted checks
from the bank where first received to the payor bank before
replacing its per-check transport fee with a maximum charge,
above which the price for transporting checks would not vary with
volume.

     According to the FTC staff comment, submitted yesterday in
response to an FRS request for views on proposed changes to its
check transportation pricing structure, "a rate ceiling may not
appropriately consider the relationship between cost and volume."

     The comment points out, "... the FRS's proposed pricing,
were it not to reflect costs reasonably, may adversely affect
efficiency.  This would be so if the FRS's pricing proposal
caused private competitors to curtail their service or leave the
market when they would not [do so] if the FRS's proposal
reasonably reflected its costs."

     The Board of Governors of the Federal Reserve System
published its proposal to amend the price structure for
transporting checks through its Interdistrict Transportation
System (ITS) in the Federal Register last August 21.  The FRS has
operated the ITS check-transportation system as part of its check
collection services for many years.  Check collection includes a
series of steps whereby a financial institution that receives a
check, known as a bank of first deposit, returns that check to 

                            - more -
(Federal Reserve Comment--3/20/91)


the payor bank for payment of funds.  The check collection
process typically requires the services of check sorting, check
transportation, and check presentment.  If the FRS sorts the
check, it then requires that the check also be transported and
presented by the FRS.  Currently, the FRS charges financial
institutions a specific fee per check for shipping checks on the
ITS network.

     According to the FRS, the "objective of modifying the price
structure of ITS surcharges is to ensure that the price structure
reflects the underlying cost function of interdistrict check
transportation."

     The pricing schedule proposed by the FRS would establish a
maximum charge for shipping bundles or presorted checks. 
According to the FTC staff comment, the effect of the maximum
charge would be to reduce per-check prices to shippers of large
bundles, and to establish a ceiling above which total charges
would not vary with volume.

     The comment represents the views of the staff of the Bureau
of Economics of the Federal Trade Commission, and are not
necessarily the views of the Commission or any individual
Commissioner.

     Copies of the comment are available from the FTC's Public
Reference Branch, Rm. 130, 6th St. and Pennsylvania Ave., N.W.,
Washington, D.C. 20580; 202-326-2222; TTY 202-326-2502.

                              # # #

MEDIA CONTACT:      Howard Shapiro, Office of Public Affairs,
                    202-326-2176

STAFF CONTACT:      John C. Hilke, Bureau of Economics
                    202-326-3483



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