The U.S. Payments Mechanism

The term payments mechanism denotes the instruments and systems used in an economy to transfer money, make payments, and settle debts among individuals, businesses, governments, and financial institutions. The U.S. payments mechanism is based primarily on the use of checks and electronic funds transfers, and to a lesser extent on cash. It also depends on the relationships between and among commercial banks, other financial institutions, and the Federal Reserve in transferring, processing, and settling money balances.

The U.S. payments mechanism differs in some important ways from the payments mechanism in most other industrialized countries. The three features that most distinguish the U.S. payments mechanism are: the extensive role of the central bank, the number of depository institutions involved, the number and dollar volume of transactions.

The Federal Reserve, the nation's central bank, plays an extensive operational role in the U.S. payments mechanism. The Federal Reserve is often referred to as a "bank for banks" because it does for banks what banks do for their depositors. The 12 Federal Reserve banks and their 25 branches provide a range of payments services - from the collection of checks and the electronic transfer of funds to the safekeeping of securities and the provision of coin and currency. They also are the nation's centers for the distribution of currency and coin within the banking system. More than one-third of all checks written in the United States are cleared through the Federal Reserve's banks, branches, and regional check processing centers (RCPCs). The Federal Reserve also operates a funds transfer (wire transfer) system over which money and government securities can be transferred instantaneously. Known as Fedwire, the system is the primary mechanism through which the nation's major banks do most of their interbank business.

The U.S. payments mechanism is different from that of most other nations because it is composed of such a large number of separate depository institutions. Historically, state and federal laws have prevented U.S. banks and thrift institutions from offering deposit and payment services outside small geographic areas or, at times, outside a single state. As a result, there are about 30,000 independent financial institutions that receive deposits and make payments for themselves and their depositors primarily through bookkeeping transfer - that is, by check.

Because the nation's depositories are fragmented into many small, self-contained units, the U.S. payments mechanism is characterized by the vast number and dollar volume of money and payment-related transactions that occur among financial institutions. For example, a check deposited in the U.S. banking system is typically handled by two or three different banks in the collection process.

Аннотация

The text deals with the financial system of the USA and the payments mechanism is described. The author highlights the role of the Federal Reserve, the nation's central bank, in the U.S. payments mechanism. Special emphasis is laid on the difference of the U.S. payments mechanism from that of most other nations.

Реферат

The text comprises five parts, covering detailed information on the U.S. payments mechanism. The term payments mechanism denotes the instruments and systems used in an economy to transfer money, make payments, and settle debts among individuals, businesses, governments, and financial institutions. Banks play a major role in the nation’s payments mechanism. The author names three main features that distin­guish the U.S. payments mechanism. They are: the extensive role of the central bank, the number of depository institutions involved, the number and dollar volume of transactions.

Then the author describes the role and functions of the Federal Reserve in the U.S. payments mechanism and the structure of a "bank for banks". He emphasizes that more than one-third of all checks written in the United States are cleared through the Federal Reserve's banks, branches, and regional check processing centers.

The U.S. payments mechanism is different from that of most other nations because it is composed of such a large number of separate depository institutions. The author explains the reason of it by the historical development of the U.S. banking system.

Due to the same reason the U.S. payments mechanism is characterized by the vast number and dollar volume of money and payment-related transactions that occur among financial institutions.