Overview

The Fed's Historical Role in Payments

The Federal Reserve has a long history in the nation's payments system. Part of the reason that Congress created the Fed in 1913 was to reduce the impact of banking crises on the system.

During the crisis of 1907, for example, many banks and clearinghouses refused to clear checks drawn on certain banks. This contributed to the failure of some institutions that were otherwise solvent. To mitigate such disruptions in the future, as well as to address perceived inefficiencies in check clearing, the Fed was charged with creating a national check clearing system.

In subsequent years, the Fed partnered with the private sector to improve several aspects of the payments system, including:

• Adding a routing number to checks that identifies the institution on which a check is drawn,
• Developing the Magnetic Ink Character Recognition (MICR) system for encoding checks so they could be read electronically, greatly advancing the automation of check processing, and
• Developing the Automated Clearing House (ACH) system to electronically process credit transfers (such as direct deposit of paychecks) and debit transfers (such as automated bill payments).

What We Do Today

The U.S. payments system has become the largest in the world, transferring more than $5 trillion each day. Most of these funds are transferred between buyers and sellers through financial institutions. A large number of these institutions have accounts with one or more of the 12 Reserve Banks that, along with the Board of Governors, make up the Federal Reserve. As a result, the Fed is an important intermediary in clearing and settling interbank payments.

The Fed helps ensure the resilience, efficiency and accessibility of the payments system that underlies our economy through several services and activities:

• Three types of funds transfer and settlement services, including Fedwire, which is typically for large-value, time-critical payments.
• One of two national Automated Clearing House operators.
• Issues and processes currency and distributes and stores coin.
• Paper and electronic check processing.
• Maintains the bank account of the U.S. Treasury, as well as other support services.
• Money order processing for the U.S. Postal Service and payment services to other federal agencies and foreign governments.

The Role of the Richmond Fed

In the Fifth District, the Payments Services function at the Federal Reserve Bank of Richmond supports the nation's payments system from its offices in Richmond, Baltimore, and Charlotte. Collectively, Payments Services staff have the following mission:

We use our broad understanding of payments, technological expertise, and ability to forge strong partnerships to deliver high value, innovative services and thought leadership in payments.

Payments Services has three divisions:

• Cash Services
• Customer Relations
• Payments Outreach

Learn more about the Fed’s role in the U.S. payments system via our Payments 101 module.

In addition, the Currency Technology Office is headquartered at the Richmond Fed. This organization serves the cash processing operations of the Federal Reserve System as well as the U.S. Bureau of Engraving and Printing and the U.S. Secret Service.