Working Paper

The founders' intentions: sources of the payments services franchise of the Federal Reserve banks

Abstract: The reserve banks check collection service was designed in 1913 to serve as "glue," attaching the new central bank to the commercial and financial markets through member banks. Successful creation and operation of the Federal Reserve System was thought to be more likely if the reserve banks could do more for member banks than lend occasionally and administer the reserve requirement tax. Initial drafts of the Federal Reserve Act would have allowed member banks to use required reserve deposits only for making interbank transfers. But correspondent banking relationships already provided interbank payment service, as well as check collection and other services, while offering a modest interest rate on interbank deposits. Nationwide check collection service was added to the bill in the latter days of the legislative process to show potential member banks that deposits maintained at the new regional reserve banks could play an integral part in the banking business.

Keywords: Payment systems; Check collection systems; Federal Reserve Act;

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    E.J. Stevens

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Financial Services working paper

Publication Date: 1996

Number: 96-03