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Banking Special Issue: Images from the Fed

Table of Contents


The Future of Bank Imaging

The green wall

Relationship Banking

Proof of Deposit

POD Case Study

Designing Forms for a Banking Environment

File Folders

Thrashing Folders

Staging Folders

Using COLD (a case study)

Check Processing: The need for Speed

Printing Your Own Checks

Check Processing 101

Images from the Fed

First National Bank & the Fed (case study)

Glossary of Bank Image Technology


by Joe Devlin


by Joe Devlin

Dots represent Fed locations offering imaging services as of June 1996. Triangles represent Fed Imaging installs that have been aproved but are not yet on-line.

"Every day, banks, especially community banks, are deciding that the benefits and opportunities that check imaging affords are well worth the cost. Problem is, with the typical initial investment for a check imaging system running around $300,000, it's often too pricey a solution for a small bank or credit agency. There is, however, a cheaper alternative for banks -- get the Federal Reserve to do the imaging for you," suggests Jean Anne Harris, Dataworks' account representative for Federal Reserve Banks, and an expert on helping small community banks use images captured by the Federal Reserve.

A Fed Snapshot

The Federal Reserve System, nicknamed the Fed, is the central bank of the United States. What's the Fed have to do with lowering the cost of imaging? Plenty. The Fed serves many different roles, one of which is to act as a nationwide check-clearing system. Banks use the Fed to ship checks back and forth to each other. Each afternoon every bank bundles all the checks that need to forwarded to other banks into bundles called the cash letter and sends them to the nearest Fed branch. Each morning, the Fed ships a big bundle of checks forwarded from other banks, back.

As might be imagined, the volume of checks that passes through the twelve regional Fed branches and their branch offices is tremendous. No other banking system handles as many checks on an average day as does the Fed. The Fed is constantly working to streamline its check handling processes. All checks forwarded to the Fed must be properly encoded with a completed MICRline that allows the Fed's high speed equipment to process them at the highest possible speed. The Fed is also pushing hard to institute electronic payment systems that have the potential of lowering the cost of payment processing significantly. Realizing that it will take quite some time before electronic payment systems to take off, the Fed is also investing heavily in imaging systems that can reduce the cost of processing the stream of paper checks it expects to receive for years to come.

A Typical Price Menu for Imaging at the Fed

Each Federal Reserve branch offers a product menu with a different mix of items and prices. The following items from the Federal Reserve of San Francisco price sheet are typical:

  • Image Capture

$0.003 per item

  • MICR Presentment

0.003 per item

  • Image Enhancement Truncation (includes capture, MICR transmission, 7-year archive & destruction of items.)

$0.01 per item

  • 31 day image archive

no charge

  • Ad Hoc Retrieval via fax

$0.75 per item

  • Ad Hoc Retrieval via Fedline

$0.50 per item

  • Image Export to Tape or CD

$0.004 per item

  • CD ROM Media Fee


  • 8mm or 3480 tape



Variety Rules

One characteristic of the Fed is that the twelve regional fed offices are each given a very large degree of autonomy. Thus, there is a great deal of variation is the sorts and speeds of the check image processing installed throughout the country. According to Daniel Littman, Manager of Product Development at the Federal Reserve Bank of Cleveland, "By year-end, twenty of 47 Fed sites will be providing image services of some type."

The equipment used also varies widely--some Feds use UNISYS sorters and cameras, others use IBM, and a few are using BancTec equipment. The software mix that drives those imaging systems also varies widely. Most are performing bitonal (black and white) scans; a few have equipment that captures grey scale. Imaging programs vary from those in Minneapolis, Cleveland, Dallas and Salt Lake City that are capturing 250,000, 200,000, 100,000 and 80,000 check images a day respectively to regional offices that have yet to install imaging cameras. 250,000 images a day may sound like a lot until you consider he fact that each of these offices captures ten times that many lines of MICR code off checks on that same day.

What's the Fed doing with all those images? The Fed has signed a few big government contracts, for example to move all government Treasury payments (Social Security payments and the like) off microfiche and onto an imaging archive system, but for the most part the Fed is building its check imaging system in order to sell that service to the banks it serves.

There are several different types of imaging services that Fed branches can provide. The most common is to image all incoming checks. This saves the bank from having to sort and store the bags of checks it used to receive daily from the Fed. In the place of the daily check bag, the Fed transmits a daily MICR file that includes the specifics (that's bank-jargon for the account names, amount, check number, etc.)

Another service banks can opt for is to send their own on-us over-the-counter checks to the Fed to have them captured. Most, but not all, banks that opt to use the Fed as service bureau for capturing check images also choose to have the Fed capture both checks that are deposited at their bank as well as the checks that are forwarded from other banks via the Fed. Having the Fed capture only half of the checks means that imaging equipment will need to be installed at the bank as well as the Fed.

Typically, the Fed holds on to checks for about a month (to allow the bank time to run that month's statements and request copies of any problem checks). After that month, the Fed shreds the checks, keeping the images as the only legal record of the documents. The Fed is glad to contract out its services as a check archive repository for seven years or longer.

In most cases, banks opt to have the Fed provide them with a dump of all the images has captured that day, week or month. This allows the bank to maintain its own image archive for research and check statement printing. The bank can usually choose whether to accept the image files from the Fed on tape, diskette or CD-ROM.

The Fed is also a happy to provide a contract allowing the bank to research the Fed archive on an ad hoc or daily recurring basis to resolve any discrepancies it encounters. Images that need to be retrieved quickly can be faxed back to the bank immediately or sent as data via Fedline or modem connections or they can be downloaded to disk or tape (it seems a waste to kill a CD to hold one or two images) and dropped off that night with the outgoing cash letter.

Fed is Not Alone

The Fed is not the only organization that provides outsourcing of imaging for US banks. In fact, third party service bureaus such as Affiliated Computer Systems (ACS) of Dallas, Texas have been offering the same services for a longer time and currently handle much higher volumes. However, the fact that the Fed's telecommunication line links most community banks for cash letter settlement is an advantage the Fed would like to capitalize on in order to maintain a leadership role in image management.

The existing Fedline connection is too narrow for transferring images effectively, but pilot programs are in place that will allow online research of Fed image archives to be a more practical reality than is possible today. The Fed is also working on a series of standards and procedures that will foster inter-bank image transfers.



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