The U.S. dollar clearing and settlement system received little attention during the recent financial crisis, mainly because it performed reliably, processing record volumes and values of trades made in stressed financial markets. This article shows how Federal Reserve policy measures aimed at...

Banks rely heavily on incoming payments from other banks to fund their own payments. The terrorist attacks of September 11, 2001, destroyed facilities in Lower Manhattan, leaving some banks unable to send payments through the Federal Reserve's Fedwire payments system. As a result, many banks...

The swift growth of e-commerce and the Internet has led to the development of a new form of electronic funds transfer—the personal on-line payment—that uses web and e-mail technologies to initiate and confirm payments. This article describes this payment instrument and the trends that have...

Real-time gross settlement (RTGS) systems such as CHAPS Sterling require large amounts of liquidity to support payment activity. To meet their liquidity needs, RTGS participants borrow from the central bank or rely on incoming payments from other participants. Both options can prove costly --...

Over the last few decades, most central banks, concerned about settlement risks inherent in payment netting systems, have implemented real-time gross settlement (RTGS) systems. Although RTGS systems can significantly reduce settlement risk, they require greater liquidity to smooth...

A recent innovation in large-value payments systems has been the design and implementation of liquidity-saving mechanisms (LSMs), tools used in conjunction with real-time gross settlement (RTGS) systems. LSMs give system participants, such as banks, an option not offered by RTGS alone: they can...

A fundamental concern for any lender is credit risk - the risk that a borrower will fail to fully repay a loan as expected. Thus, lenders want credit arrangements that are designed to compensate them for - and help them effectively manage - this type of risk. In certain situations, central banks...

The Federal Reserve's Fedwire funds transfer service - the biggest large-value payments system in the United States - has long displayed a peak of activity in the late afternoon. Theory suggests that the concentration of late-afternoon Fedwire activity reflects coordination among participating...

Globalization and technological innovation are two major forces affecting the financial system and its infrastructure. Perhaps nowhere are these trends more apparent than in the internationalization and automation of payments. While the effects of globalization and technological innovation are...

Although many people believe that the payments area is a fairly minor business function within the banking sector, an increasing share of banks' revenue comes from fee services. To understand the full scope of the payments area, the author develops a broad definition of this business line and...