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Economic Perspectives, Vol. 9, No. September/October, 1985
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.
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