The Role of the Federal Reserve

Read this article to learn more about the Federal Reserve Bank of New York.

Financial Services

The New York Fed and the other Reserve Banks provide several important services to the Federal government and to depository institutions. Depository institutions are charged a fee for these services.

As the banker for the Federal government, the Fed clears checks drawn on the Treasury's account. Acting as fiscal agents for the government, the Reserve Banks sell, service, and redeem Treasury securities. Further, currency and coin are placed into or are withdrawn from circulation in response to seasonal and cyclical shifts in the public's need for cash. Almost all U.S. currency now consists of Federal Reserve notes, which were first issued in 1914.

The New York Fed operates two types of electronic funds transfer (EFT) systems, which permit the rapid nationwide clearing and settling of electronically originated credits and debits among financial institutions. One system, Fedwire, developed and maintained by the Fed and overseen by the Fed's Wholesale Product Office, transfers large-dollar payments among Federal Reserve offices, depository institutions, and federal government agencies. The New York Fed serves as the Wholesale Product Office for the Federal Reserve System. In this capacity, it is responsible for strategic planning and oversight of the Fed's large-dollar funds and securities transfer businesses, as well as its net settlement services. The majority of U.S. Fedwire transactions originate from Second District financial institutions.

The other EFT system, which makes relatively small payments, consists of national and local automated clearing house (ACH) networks operated by or with the support of Reserve Banks. The ACH system was designed to reduce the use of paper checks for routine payments. In addition, a large number of payments are cleared privately through clearinghouses, such as the Clearing House Interbank System, also known as CHIPS.

In the past, the New York Fed's East Rutherford Operations Center in New Jersey handled check processing for New Jersey and the New York Metropolitan area. However, as part of the Federal Reserve's check restructuring process, East Rutherford check processing operations were moved to the Federal Reserve Bank of Philadelphia. These changes were made in response to the changing market, including the decline of check volumes industrywide as consumers and businesses continue to move toward electronic payments.