Web exclusive - What else the Fed provides

March 1, 2008

Services to depository institutions
Federal Reserve Banks are actively involved in the nation's payment system to help it operate as efficiently and safely as possible. In some ways, Fed services to depository institutions are similar to depository institutions' services to their customers – transferring funds, providing cash and accepting and safeguarding deposits. Most of the nation's spending money is held in checking accounts, the commonly used methods of disbursing funds. But check usage has declined steadily since the mid-1990s while the popularity of electronic payments has soared.

Check collection
More than half of the checks cashed are collected through the Federal Reserve Banks' check collection system. The Fed's high-speed, computer-controlled machines sort checks, total the amounts, credit the depositing institution and charge the institution on which they are drawn. The checks are then sent, either in paper or electronic form, to the latter depository institution.

Electronic payments and funds transfers
Reserve banks and one other private-sector operator provide nationwide processing of automated clearinghouse (ACH) electronic payments. ACH payments are used for direct deposit of payroll and corporate payments to vendors, while consumers use these transfers to pay insurance premiums, mortgages, loans, etc. Feds also provide an electronic funds transfer (EFT) system that depository institutions can use to make large-value, time-critical payments for interbank purchases, sales of securities, disbursing or repaying loans or settling real estate transactions.

Cash services
While checks and electronic payments account for most of the dollar volume of spending, cash is still important. New coins and notes are shipped from the U.S. Treasury to the Federal Reserve Banks, where they are stored until needed to fill orders from depository institutions.

Discount Window Loans
Reserve Federal Reserve Banks help maintain a sound banking system by acting as the lender of last resort for depository institutions that find themselves temporarily short of reserves because of unexpected credit demands, deposit drains or seasonal economic factors. The availability of credit from the Federal Reserve is intended to stabilize individual depository institutions as well as the banking and financial system as a whole. Depository institutions are expected to seek funds first from reasonably available alternative sources and to rely on the Federal Reserve discount window only in exceptional circumstances.

Generally, discount window loans are made for a day or two to help the borrowers adjust their reserve position. Discount window credit is subject to governing statutes and is administered according to Federal Reserve policy guidelines by lending officers at the individual Reserve Banks.

The Treasury's Checking Account
Incoming federal government revenues are credited to the U.S. Treasury's accounts at reserve banks. Most of these revenues come from transfers of funds from depository institutions in which the Treasury initially deposited its receipts from taxes and the sale of securities. The transfers are accomplished by debiting the depository institutions' reserve balances with the Federal Reserve and crediting the Treasury's account with the Fed. Reserve Banks disburse money from the Treasury's account through EFT or ACH payments or, to a limited extent, by check.

The Treasury's Fiscal Agent
When current expenses run ahead of current cash resources, the Treasury borrows, mostly by auctioning government securities to investors. The auctions are held by the Federal Reserve Banks, acting as the Treasury's fiscal (financial) agents. The Fed also inscribes and delivers U.S. savings bonds sold through depository institutions and other issuing agents.

Federal Reserve Emergency Notification Services/Internet (FRENSi)
The Federal Reserve Emergency Notification Services/Internet system (FRENSi)  is a Web-based application that permits Sixth District financial institution representatives to register as contacts to receive nonsensitive emergency operational notifications via telephone and e-mail from FRB Atlanta officials in the event of a contingency