is inappropriate for the federal reserve to regulate the industry in which it competes, others believe that by providing payment services, the federal reserve gains operational experience that makes it a better regulator. more specifically, participants had differing views on various aspects of these issues and the consequences of each scenario. many were concerned that, if the federal reserve withdrew from these services, it would result in short - term service disruptions with few long - term benefits. many indicated that prices for retail services would rise, and smaller banks and remotely located banks were concerned that they would have difficulty obtaining check and ach services. concern was expressed that without an operational presence, the federal reserve would have to regulate the retail payments system more extensively to ensure that all banks had access to the services. while not unanimous, there was strong support from institutions of all sizes for continued federal reserve provision of retail payment services. some stated that because check payments would continue to dominate the u. s. payments system for the foreseeable future, the federal reserve should maintain its check services while consumers adapt to the use of electronic payments mechanisms. others indicated that by establishing a more aggressive operational presence in the check and ach services, the federal reserve could undertake initiatives to promote efficiency in general, and to encourage the use of electronics to collect checks in particular. some indicated that private - sector service providers would prefer to invest in developing new markets and devising new technologies rather than in expanding their capacity to collect paper checks. they also indicated that they face significant resource demands to address other operational issues, such as the federal government ’ s initiative to deliver almost all payments electronically by 1999 and preparation for the year 2000. no matter what their view about the federal reserve ’ s continued presence in the retail payments market, virtually all participants believed that the federal reserve could play an important role in educating consumers about the benefits of electronic payments. while the committee has not reached detailed final conclusions, it is clear that the federal reserve can best ensure the safety and effectiveness of the nation ’ s payments system by continuing to provide its existing retail payment services for checks and ach, and we will so recommend. we agree with a recurring theme at the forums that there would likely be significant disruptions in the payments system if the federal reserve withdrew, with little net societal benefit. currently, the banking industry is trying to grapple with a variety of technological issues, an effort that is requiring a great deal of resources. banks are adopting the latest technological innovations to provide their customers with new and improved

##red checks. in developing procedures to implement those provisions, the federal reserve, working with the banking industry, created a means to process returned checks on high speed equipment, which shortened return times by reducing the number of banks that might handle dishonored checks. more recently, in 1994, the board modified regulation cc to implement the same - day settlement rule, which broadened banks ’ ability to present checks to collecting banks directly and receive same - day funds in settlement. direct presentments reduced the role of intermediaries, including the reserve banks, but it improved the efficiency of the payments system. as expected, the volume of checks collected through reserve banks has declined. this summarizes the history of our involvement in payments to date, and the situation on the surface looks quite stable. why, then, is the federal reserve undertaking a fundamental review of its role? there are several reasons. first, as i have noted, the banking industry is in the midst of significant change. these changes are primarily evolutionary - - driven by advances in technology, by industry consolidation, and by regulations that now permit interstate branch banking. they do, however, provide the opportunity for revolutionary responses that may, with time, dramatically alter the face of the payments system. we need to understand and help to beneficially shape these forces. second, from time to time, and certainly in a period of change such as this one, it is appropriate for any organization to reassess its mission and how it fulfills that mission. as you know, the united states remains far more dependent on paper checks for making payments than any other industrialized country, even though electronic transactions appear to be more efficient and less costly. as you also know, the federal reserve is the only institution that presents checks to all depository institutions nationwide. we suspect that industry consolidation and electronic technology may change the impact of our nationwide reach, but exactly how and when that might happen, and what would be appropriate responses, are not clear. careful self - scrutiny is clearly timely. finally, there are significant differences of opinion in the industry, and our society more generally, as to the appropriate payments role of the federal reserve. as a public service entity, the federal reserve should address these concerns. in light of all this, in october 1996, chairman greenspan asked me to serve on a committee that is led by vice chair rivlin to examine the federal reserve ’ s role in the payments system. the committee has been at work all year, and