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

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  • Edward J. Stevens

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.

Suggested Citation

  • Edward J. Stevens, 1996. "The founders' intentions: sources of the payments services franchise of the Federal Reserve banks," Financial Services working paper 96-03, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcfs:96-03
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    Cited by:

    1. Jeffrey M. Lacker, 1997. "The check float puzzle," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-26.
    2. John A. James & David F. Weiman, 2010. "From Drafts to Checks: The Evolution of Correspondent Banking Networks and the Formation of the Modern U.S. Payments System, 1850–1914," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2‐3), pages 237-265, March.
    3. R. Alton Gilbert, 1999. "Effects of Federal Reserve services on the efficiency of the system for collecting checks in the United States: 1915--30," Working Papers 1999-014, Federal Reserve Bank of St. Louis.

    More about this item

    Keywords

    Payment systems; Check collection systems; Federal Reserve Act;
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