Federal Reserve - Financial Services
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Federal Reserve > History • Structure • Monetary Policy • Bank Supervision • Financial Services
In addition to guiding monetary policy and supervising and regulating member banks, the Federal Reserve also provides a number of financial services to member banks and to the federal government. These services include payment systems policies and solutions as well as currency distribution operations.
The Banker's Bank
The financial services that the Federal Reserve Banks provide their member banks include:- Maintaining the banks' deposit accounts with the Federal Reserve.
- Providing payment services, including collecting and processing checks as well as bank-to-bank electronic fund transfers (ETFs) and automated clearing house (ACH) services. One of the problems that caused the banking crises in the early 1900s was that many banks and clearing houses at the time refused to clear checks drawn on certain other banks. Congress gave the Federal Reserve the authority to create a nationwide check-clearing system to ensure that each check is cleared — no matter which bank it's drawn on.
- Distributing and receiving U.S. currency into and out of the banks' deposit accounts. It is the responsibility of the Federal Reserve Banks to meet public demand for currency to ensure that fluctuations in demand (such as those that occur just before holidays) don't disrupt the banking industry.
The Government's Bank
The financial services that the Federal Reserve Banks provide the federal government include:- Acting as fiscal agents.
- Paying treasury checks.
- Processing electronic payments.
- Issuing, transferring, and redeeming U.S. government securities.
Innovation In Payment Processing
One of the purposes of having the Federal Reserve Banks compete with
private-sector firms to provide services like check, ETF, and ACH
processing is that it encourages competitiveness and, in turn, innovation
and efficiency.
For example, the Federal Reserve Banks are currently in the process of making check processing more efficient through electronic scanning and electronic check presentment, which both work to increase the speed of check processing and reduce its costs. In 2003, Congress passed the Check Clearing for the 21st Century Act (informally known as Check 21), which removed the barriers to such electronic check processing.