Federal Reserve - Financial Services
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 account 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 what 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.
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