Priced Services: The Fed's Impact on Correspondent Banking
With the passage of the Depository Institutions
Deregulation and Monetary Control
Act (DIDMCA), the Congress set in motion the
process of eliminating numerous competitive
barriers between financial intermediaries. The
basis for a more "level playing field" was developed
as product and price barriers were removed,
reserve requirement levels lowered,
reserve inequities narrowed and the regulatory
reporting burden standardized across depository
institutions. The goal was improved industry
efficiency from increased competition.
At the same time, the Congress decided that
the Bank Operations Division of the Federal
Reserve, a long-time provider of free correspondent
banking services, should be more accountable
to the forces of the marketplace.
Services would no longer be provided free of
charge nor limited to member banks, and the
Federal Reserve would be an active market
participant alongside other (private) correspondent banks.