Introduction to Finance

 
The Federal Reserve System Purposes & Functions,
 
Board of Governors of the Federal Reserve System, 
Washington, D.C.
FIGURE 4.4
 Consumer 
Protection Responsibilities of 
the Federal Reserve System

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4.6 Fed Service Functions
95
LEARNING ACTIVITY
Go to the Federal Reserve Board of Governor’s website, http://www.federalreserve.gov, 
and fi nd the Fed’s list of regulations. Write a brief summary about the materials on 
Regulation Z.
4.6
Fed Service Functions
The Reserve Banks provide a wide range of important services to depository institutions and 
to the U.S. government. The most important of these services is the payments mechanism, a 
system whereby billions of dollars are transferred each day. Other services include electronic 
fund transfers, net settlement facilities, safekeeping and transfer of securities, and serving as 
fi scal agent for the United States.
The Payments Mechanism
An effi
cient payments mechanism is necessary for the monetary system to carry out the 
fi nancial function of transferring money, which in turn is a requirement for an eff ective 
fi nancial system. For a review of how checks have traditionally been processed through the 
banking system, refer to Figure 3.4 in Chapter 3. Recall that banks can clear checks either 
directly with one another or indirectly through bank clearinghouses. Checks also can be 
processed or cleared through the Federal Reserve Banks. The payments mechanism admin-
istered by the Fed also includes providing currency and coin and electronic funds transfers. 
Electronic forms of payment are replacing the check as a payment method. Included 
alternatives are credit cards, debit cards, and online account transfers. Furthermore, instead of 
transporting and sorting paper checks, more and more banks electronically process the checks 
they receive.