The Role of Frb in Us Payment System

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THE ROLE OF FEDERAL RESERVE BANK IN THE US PAYMENT SYSTEM Currency and Coin • • • • Responsible for distributing currency and coin to depository institutions, and ensuring that enough currency and coin are in circulation to meet public demand. New currency and coin are shipped to Reserve Banks and branches across the country. When people need additional cash, a depository institution may order more currency and coin from its Reserve Bank or branch. Institutions pay for these orders by drawing down their Federal Reserve account balances. Checks • • Reserve Banks also provide check collection services to depository institutions. The Fed processes approximately one-third of the paper items that ultimately clear as checks in the United States. Commercial banks clear checks directly with each other through clearinghouse associations or through agreements with other banks. • Electronic Payments 1. Automated Clearinghouse (ACH) • An electronic means to exchange debit and credit entries between depository institutions to settle customer transactions. • ACH credit transfers include direct deposits of payroll, Social Security benefits, and tax refunds. • ACH debit transfers include recurring payments for mortgages, insurance premiums, utility bills. 2. Fedwire • A highly sophisticated, computerized communication system that transfers larger funds almost instantly from one depository institution to another anywhere in the United States. • The Funds Service allows depository institutions and certain other financial institutions to make large payments to each other in real time. • The Fedwire Securities Service is a transaction settlement system that enables depository institutions and certain other government and financial institutions to hold, maintain, and transfer securities. Government Payments • • • • The Fed acts as the U.S. government’s banker. Reserve
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