best aid the process of moving to these new instruments without pre - empting private sector creativity and problem solving. federal reserve as regulator i ’ ve focused my comments thus far on the federal reserve ’ s operational role in the payments system. in addition to the reserve banks ’ role as provider of payment services, the federal reserve board also regulates aspects of the payments system. while our role as provider of payment services goes back to the inception of the federal reserve, our authority to regulate the interbank collection or execution of payments not processed by the federal reserve is only about a decade old. in exercising this regulatory authority, the board has focused in large part on improving the competitiveness of the market for interbank check collection. the board ’ s 1994 same - day settlement rule enhanced the ability of correspondent banks to compete with the federal reserve banks in collecting checks. the board adopted this rule because it believed it was in the best interest of the payments system, even though it knew the rule would reduce the reserve banks ’ check volume. our goal was competition in the check collection market, not preserving federal reserve market share. as i mentioned earlier, even with the same - day settlement rule, correspondent banks may still have difficulty competing with federal reserve banks in some check collection markets due to their more limited presentment abilities. several weeks ago, the board issued an advanced notice of proposed rulemaking designed to assess market experience under the sameday settlement rule. the comments we receive will be helpful in assessing whether further reductions in the legal disparities between the federal reserve banks and private - sector banks would further enhance competition and the overall efficiencies that could result from that competition. this analysis is a complex one. i believe that in principle reduction in legal disparities between the federal reserve and private - sector banks will enhance market competition. the benefits of regulatory change, however, have to be balanced with a potential increase in costs to paying banks and their check - writing customers. in other words, we should continue to look for ways to reduce legal disparities between the federal reserve and privatesector banks, but some of these changes may not reduce costs for all participants in the system. the federal reserve ’ s role should also include identifying and reducing regulatory burdens that unreasonably inhibit innovations that improve the efficiency, security, and convenience of payment methods. regulation may reduce uncertainty for some, but it may also discourage investment in new products or technologies by others. this is particularly true if the product is

system efficiency. we must recognize, however, that the competitive market envisioned by congress in the monetary control act may not be fully realized due to several fundamental differences between the federal reserve and private firms. first, the federal reserve is immune to insolvency or default. therefore, its customers do not need to concern themselves with credit risk associated with using the federal reserve as an intermediary bank in payment services. second, the reserve banks continue to have some legal advantages over other providers of check services, even though the federal reserve board has taken steps to reduce these advantages through its regulation cc same - day settlement rule. third, the federal reserve has a different risk - taking profile than do the private firms with which it competes. as you know all too well, many innovations that appear to have great promise fail in the marketplace, while others succeed. the public nature of the federal reserve, along with its self - imposed objective of achieving industry average profit margins on each service line, virtually dictates a more conservative approach in the marketplace. in contrast, a private firm may be more willing to risk the funds of its shareholders in anticipation of achieving significantly higher profit margins. finally, federal reserve banks lack the flexibility afforded their private - sector competitors to be selective in the customers to which they will provide payment services and in their pricing of those payment services. we are also subject to far greater public scrutiny and disclosure than our competitors. you can see from these examples that the federal reserve has some material advantages as a competitor, but also some impediments to being an effective competitor. both the advantages and the impediments should be kept in mind. rivlin committee study because of these competitive inequities, it is all the more important that the federal reserve periodically reassess the need to continue to provide check and ach services as market structure, technology, and competitive conditions evolve. we last did so in 1996 and 1997 after chairman greenspan established the committee on the role of the federal reserve in the payments system, or the so - called rivlin committee. the committee examined a range of alternative scenarios under which payments could be provided and sought views from a large number of payments system participants. most participants urged the federal reserve to continue to provide check and ach services. many expressed concern as to whether private - sector service providers would adequately meet the needs of all depository institutions, especially small institutions and those in remote locations, if the federal reserve were to exit these services