Federal Reserve Banks As Clearing Houses For Members

The Federal Reserve Act has established a domestic clearing system for the country. Under the Act, Federal Reserve banks are empowered to act as clearing houses for members. This work of clearing and collecting can be better accomplished through the Federal Reserve banks, which are in direct relation between debtor and creditor banks, and standing between, act for both.

Operation Of The Clearing System

The present clearing and collection system as it operates under the Federal Reserve Act may be briefly summarized as follows: Each Federal Reserve bank is permitted by the Act, to exercise the functions of a clearing house in its district for member banks and for qualified non-member banks, known as clearing member banks.

Every Federal Reserve bank receives on deposit at par from member banks or from Federal Reserve banks checks and drafts drawn upon any of its depositors, and when remitted by a Federal Reserve bank, checks and drafts drawn by any depositor in any other Federal Reserve bank or member bank upon funds to the credit of said depositor in said Reserve bank or member bank. Member banks are not restricted from charging actual expenses incurred in collecting and remitting funds, or for exchange sold to their patrons. The Federal Reserve Bank fixes the charges to be collected by the member bank from its patrons whose checks are cleared through the Federal Reserve Bank and the charge which may be imposed for the service of clearing or collection rendered by the Federal Reserve Bank.