The Federal Reserve Banks as Fiscal Agents and Depositories of the United States
Manypenny, Gerald D., Bermudez, Michael L., Federal Reserve Bulletin
Gerald D. Manypenny and Michael L. Bermudez, of the Board's Division of Reserve Bank Operations and Payment Systems, prepared this article.
The Federal Reserve, the nation's central bank, is also the U.S. government's bank. Its role in providing banking services to the government is based on the Federal Reserve Act, which provides that, when required by the Secretary of the Treasury, the Federal Reserve Banks shall act as "fiscal agents" and "depositories" of the United States. As fiscal agents of the U.S. Treasury, the Reserve Banks provide debt-related services--issuing, servicing, and redeeming Treasury securities and processing secondary market transactions initiated by depository institutions. As depositories, the Reserve Banks provide payment-related services--handling the government checking account and disbursements and collections.
Today, the Federal Reserve Banks also provide banking services on behalf of many domestic and international government agencies, but the bulk of the activity is for the U.S. Treasury. The Treasury-related transactions are large: For example, the Federal Reserve Banks on average process about $476 billion per business day in privately owned, marketable Treasury securities transactions and handle $16 billion per year in sales and redemptions of U.S. savings bonds; and per average business day, they process about $6 billion in tax, fee, and loan receipts and about 4 million disbursements by check and wire.
This article describes the nature of the principal fiscal and depository services required by the U.S. Treasury; explains how the Federal Reserve Banks meet those requirements; surveys other fiscal and depository services performed by the Reserve Banks; and discusses the direction of developments in certain service areas.
The Federal Reserve Act of 1913, which created the Federal Reserve System, authorized the Federal Reserve Banks to provide fiscal agency and depository services to the Department of the Treasury. It was not until 1915, however, that Secretary of the Treasury W.G. McAdoo appointed the Federal Reserve Banks to act on behalf of Treasury. To that end, U.S. government funds on deposit with national banks were transferred to Treasury's account at each Federal Reserve Bank. These accounts established the Reserve Banks as Treasury's depository--the intermediary through which Treasury collects and disburses funds on behalf of the federal government; thus, the Federal Reserve literally acquired the government's checking account.
Since then, many other services, both for Treasury and for other agencies, have been added to the deposit services provided by the Reserve Banks. The Reserve Banks' fiscal agency role dates from May 1917, when they began the distribution, safekeeping, and redemption of the First Liberty Loan Bonds, offered by the government to finance the U.S. effort in World War I. The success of that offering, the effectiveness of the Reserve Banks in handling Treasury's accounts since 1915, and the government's growing need to borrow influenced Treasury in 1921 to end its network of Subtreasuries--field offices that gave Treasury access to regional money centers--and to transfer to the Federal Reserve many of the operational functions related to financing the public debt.
The massive financing required to wage World War II brought the next significant expansion in the Banks' fiscal agency role, handling the series E savings bond introduced in 1941. In the late 1960s, the Federal Reserve Banks began providing services--primarily securities-related--for other U.S. government and international agencies.
SERVICES ON BEHALF OF THE U.S. TREASURY
The Reserve Banks' fiscal agency and depository responsibilities to Treasury are authorized by statute, and the operating mechanisms are subject to Treasury regulations. In the main, Reserve Bank services for Treasury involve the two entities comprising the Treasury Fiscal Service: the Financial Management Service, for depository services, and the Bureau of the Public Debt, for debt-related operations. …