The Fed's Entry into Check Clearing Reconsidered
31 Pages Posted: 26 Nov 2012
Date Written: 1999
Abstract
Students of U.S. banking history typically hold that the check collection industry was excessively costly prior to 1915 and that the Fed's subsequent entry into check clearing improved efficiency. The authors propose an alternative view based on the economics of network communications industries. Their view is that a desire to attract members to the fledgling Federal Reserve System motivated the Fed's entry into check clearing. One step in accomplishing this goal was the granting of a competitive advantage for the Reserve Banks, which shifted the allocation of common costs associated with check collection.
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