An examination of how much Federal Reserve Banks should charge for daylight overdrafts. A low fee involves questions of moral hazard in central banking, while a high fee raises questions about risk myopia in private credit markets.

In the past decade, the U.S. economy has witnessed a tremendous surge in the usage of electronic payment processing services and an increased importance of the firms that provide these services. The payments industry has also undergone changes in cost structure with the introduction of new...