by congress, check 21 has created a strategic vision for moving the u. s. check clearing system into the new century. the historic infrastructure for paper check clearing is consolidating rapidly. banks are changing their internal systems so they can accept deposits and collect checks electronically and are increasingly accepting their check presentments electronically. bank technology vendors are playing an important role in facilitating change. and the reserve banks are working to implement the vision of check 21, both by enhancing their electronic check infrastructure and by working closely with other payments system operators and the industry. in this environment of changing rules, infrastructure, and, yes, costs, it is imperative for banks and their customers to look closely at their own payment policies, operations, and technologies. banks will need to develop broad and thoughtful payment strategies to navigate the changing environment and work constructively within the industry. inevitably, banks will also need to change their operations. the role of the federal reserve the federal reserve will continue to play an important role in fostering a smoothly functioning payments system that is safe, efficient, and accessible. we also need to be flexible in carrying out our traditional payments system functions – provider of payment services, regulator, and catalyst for change – in the rapidly changing payments landscape. since its inception, the federal reserve ’ s broad role in the payments system has been to improve efficiency and foster financial stability. when the federal reserve was formed almost one hundred years ago, the u. s. banking system was highly fragmented and checks were not cleared at par. to address this situation, the federal reserve began providing a national check - clearing service to banks that joined the federal reserve system. this service and other federal reserve policies helped guide the nation toward a more unified payments system. in its role as service provider, the federal reserve will continue to promote the efficiency and stability of the nation ’ s payments system. the reserve banks are now pricing their check services to encourage greater use of electronic check clearing. the reserve banks are also leaders in providing check 21 services that encourage depository institutions to shift to a greater use of electronics in check processing and are working collaboratively with the industry on electronic check standards and other technical issues. most importantly, the reserve banks will continue to compete as payment services providers on a fair and equitable basis by pricing their services to recover their costs, including imputed profits and taxes, over the long run, as required by the monetary control act of 1980. in its role as a regulator, the federal reserve will need to be

a barrier to the use of electronic payments, the federal reserve has recently proposed modifications to regulation e that would eliminate the requirement for paper receipts on small - dollar payments. 8 the federal reserve must, however, also be mindful of how changing payment practices can affect risk in the payments system and take regulatory action, when appropriate. for example, the federal reserve recently modified regulation cc to reallocate the liability for unauthorized remotely the term " conversion " generally refers to " check - to - ach conversion, " in which data from a check is used to create an electronic funds transfer that is cleared and settled over the ach network. such transactions include accounts receivable ( arc ), point - of - purchase ( pop ), and back - office conversion ( boc ) transactions. check 21 became effective in october 2004. before check 21, banks were required to present the original paper check to the paying bank unless the paying bank had agreed to accept presentment of the check electronically. see board of governors of the federal reserve system, report to the congress on the check clearing for the 21 century act of 2003, april 2007. http : / / www. federalreserve. gov / boarddocs / rptcongress / check21 / check21. pdf ( 491 kb pdf ) see 71 fr 69500 ( 72 kb pdf ) ( december 1, 2006 ). st created checks among depository institutions, shifting liability to institutions that are better positioned to understand and mitigate those risks. 9 clearly, both regulators and the private sector have a role to play in the continuing evolution of the payments system. regulators must continue to evaluate and adjust their rules in light of new realities in the marketplace. at the same time, the private sector must put forward sound and prudent innovations that address the needs of the marketplace, including the need to control risk. characteristics of successful innovation our conference organizers have challenged us to think about " what ’ s next. " one tool to help understand the future is to analyze why certain innovations have been successful in the past. infrastructure changes have been one source of successful innovation. much of the innovation in the early days of electronic payments involved building new electronic processing systems for ach and card systems, and then gradually expanding electronic access to these core systems. the goal of these infrastructure changes was typically to speed up payments and reduce the societal costs of dependence on paper. following the implementation of check 21, the banking industry and the reserve banks are again