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The Federal Reserve’s reduced role in retail payments: implications for efficiency and risk

Richard Sullivan ()

Economic Review, 2012, issue Q III, No v. 97, no. 3

Abstract: The Federal Reserve’s role in clearing and settling retail payments has declined in recent years. This stems not only from the expanding role of private-sector organizations, but also from the ongoing shift by consumers from paper checks to debit cards. ; Some suggest it would be most efficient for the Federal Reserve to offer settlement services mainly for payments among financial institutions, while others believe it should stay involved in retail payments as well. ; Sullivan argues that the Federal Reserve’s role in settling retail payments may actually promote efficiency, by providing a check against high industry concentration. Its involvement in retail payment settlement also bolsters the system’s integrity, providing a backup in case of operational failures in the industry, promoting efforts to manage operational risk and providing safe interbank settlement services.

Date: 2012
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