Economic Review

The Monetary Control Act of 1980 required the Federal Reserve System to begin charging banks and other depository institutions for check clearing and other services that is previously provided free to member banks. Specifically, the Act instructed the Federal Reserve to choose prices for its services that fully reflect the costs that a private sector firm would incur in the provision of such services.

In this article, economist Anatoli Kuprianov offers a comprehensive account of the pricing methods adopted by the Federal Reserve in complying with the Monetary Control Act.  He discusses the Fed's procedures for estimating private sector costs and for allocating those costs among the various priced services. He also critically analyzes the procedures and draws on capital finance theory to suggest ways in which they might be improved.