Gather three banking experts for a virtual exchange about the Federal Reserve’s role in a building a faster payments system, and the sparks fly. In Part one of the email debate hosted by The Bridge, the policy forum sponsored by The Mercatus Center at George Mason University, a trio of experts examined if the Fed even needed to partake in such a venture. In Part Two, the three pundits debated if a governmental agency can realistically deliver on such a complex promise.
Here are a few highlights from the second round of how realistic a Fed faster-payments system would be:
Aaron Klein of the Brookings Institution thinks the Fed should mandate faster payments, but not necessarily serve as a provider:
Americans who can least afford it are stuck paying billions a year in fees and high-cost loans to access their own money. The simplest, most efficient, and fairest thing the Fed can do is use its own authority and change the system now. As George points out, waiting for the Fed to build its own system will take years, maybe a decade or more. Unless the Fed is willing to use its own funds to pay the tens of billions that it will cost working families to handle that delay, then the Fed needs to fix the problem the best way it can: through adopting regulations requiring real-time payments.
George Selgin from the Cato Institute opposes the Fed serving as a provider of faster payments:
It doesn’t follow that, so far as achieving faster payments is concerned, there is a compelling need for [the Fed] to do so. Finally, RTGS, as an alternative to a 24/7 Fedwire (deferred settlement) system, is not free of disadvantages of its own, which consist of higher bank liquidity requirements and a correspondingly heightened risk of payment delays and gridlock. Indeed, according to some experts, drawing upon experiences with existing central-bank RTGS systems, such systems don’t really reduce banks’ credit exposure at all. Instead, they merely redistribute credit risk among various payment-system participants.
Professor Jim Angel of Georgetown University’s McDonough School of Business supports the Fed providing faster payments:
Even if the Fed did have the authority to just mandate faster payments, a mere rule from the Fed would not be enough. The Fed itself is one of the biggest impediments to faster payments. The Fed is where the different payment providers can settle their payments. Even the bank-operated check clearing and ACH networks depend on the Fed for part of their activities. The Fed’s systems that allow banks to settle payments with each other operate on 20th Century East Coast bankers’ hours, Monday through Friday.
In order for our banking system to speed up and offer true 24/7 service to everyone, the Fed has to operate 24/7.
Read the entire Part Two of the Mercatus Debate.
Read the Introduction to the Mercatus Debate.