Introduction to Finance

Check Clearance Through Federal Reserve Branch Banks 
Branch banks 
of the Reserve Banks enter into the clearance process in a very important way. If a check is 
deposited with a depository located closer to a Reserve Branch Bank than to a Reserve Bank, 
the branch bank, in eff ect, takes the place of the Reserve Bank. The Federal Reserve facilitates 
the check-clearing services of the Reserve Banks and their branches by maintaining a small 
group of regional check-processing centers.
Check Routing 
In the past, a many employees at the 12 Reserve Banks were engaged 
in check clearing. Fundamental to the clearance process was the need to read the system of 
symbols and numerals shown in 
Figure 4.5
. Although these symbols are slightly diff erent 
from conventional numbers, they are easily read and are referred to as the magnetic ink 
character recognition (MICR) line. Information about the clearance process is printed on 
the lower part of the check. In addition to the clearance symbol, banks include a symbol for 
each customer’s account. Banks also continue to include the older check routing symbol in 

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4.6 Fed Service Functions
97
the upper right-hand corner of their checks. Today, banks can keep an image of a check and 
process payment electronically through automated clearing houses (ACHs). Banks now also 
have several ways to clear checks.
Transfer of Credit
The Fed provides for the transfer of hundreds of millions of dollars in depository balances 
around the country daily. The communication system called Fedwire may be used by depos-
itory institutions to transfer funds for their own accounts, to move balances at correspondent 
banks, and to send funds to another institution on behalf of customers.
Other Service Activities
A large portion of Fed employees hold jobs directly related to the Fed’s role as 
fi scal agent
for 
the U.S. government. The services include holding the Treasury’s checking accounts; assist-
ing in the collection of taxes; transferring money from one region to another; and selling, 
redeeming, and paying interest on federal securities. The federal government makes most of 
its payments to the public from funds on deposit at the Reserve Banks. The Fed also acts as 
fi scal agent for foreign central banks and international organizations such as the International 
Monetary Fund.
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