Although the Federal Reserve and Treasury have always shared common goals, for more than seven decades their relationship was uncommon in a very important way. The Fed’s costs for its services to the Treasury were not explicitly reimbursed from 1917 to 1992, at which point Congress enacted legislation to provide money to reimburse the Fed for its services for the Bureau of the Public Debt. A similar law permitted the Financial Management Service and other federal agencies to begin reimbursing Reserve banks for expenses incurred on their behalf beginning in fiscal year 1998.

Both the Fed and the Treasury support the reimbursement of the Fed’s fiscal agent services for two reasons: 1. If the federal government did not include in its budget process to Congress the costs incurred by the Reserve banks on the Treasury’s behalf, Congress would have trouble determining the true cost to taxpayers of the agencies’ operations; and 2. When services are directly reimbursed, the costs are much more transparent. As a result, the services are less likely to be overused and more likely to be used in an efficient manner.

The Treasury in 2004 reimbursed the Reserve banks $385 million. That figure is expected to rise above $400 million in 2005.