Federal Reserve To Use Internet For Money Transfer

An anonymous reader writes "According to the New York Post, the Federal Reserve (i.e. Alan Greenspan and Co.) is going to change the way that it transfers money between banks so that transfers now take place over the internet instead of via a private banking network. They aren't specifying the types of security measures that will be used (security through obscurity?) Am I the only one who thinks that this is a very bad idea? Might a DDOS attack on the Fed's computers bring down the entire banking system?" The banks have put some thought into security.

Comments

VPN and PGP encrypt!

[chevman]

VPN and PGP encrypt. That's over the internet, but pretty damn secure - I work in the healthcare industry and PGP is pretty standard, usually over a VPN or secure FTP.

Re:VPN and PGP encrypt!

[LippyTheLip]

I used to work at the FRB Boston on the staff of the Financial Service Policy Committee, the body that sets policy for the services that the Fed provides to US banks.

This article is totally misleading. The Fed is not going to be transferring money over the Internet. Clearing and settlement will continue to take place over dedicated, leased, secured IP lines or in data centers with military-level security.

The change being made is how individual commercial banks interface with the computers at the Fed in order in initiate wire transfers and transmit data for bulk transaction processing. FedLine for the Web is a great improvement over the MS-DOS-based systems that are currently in use for small and medium-sized banks. Through these systems, banks do a variety of things, including initiate wire transfers, check intraday overdraft balances, submit batch files for overnight ACH payments processing, and many others. More info here on what the Fedline is and the various ways of accessing it. The Fed had been developing FedLine for Windows, but abandoned that in the late 90's. Doing this over the web is no more risky than online banking for the consumer, except that the sums are greater -- but so are the benefits -- as long as precautions are taken, such as one-time-use TANs (transaction authorization numbers), certificates, etc.

Re:What is the Fed?

[HBI]

The Federal Reserve is a system set up by capitalists (banks) for capitalists (banks).

Wrong. The Federal Reserve System was set up by an act of Congress December 23, 1913. The Fed is a public/private organization with a complex structure that makes the Board of Governors Federal employees (like Mr. Greenspan) and the staffs of the regional banks private sector employees. Your questions about what it does will be answered somewhat here.

Instead of giving the money to individuals (which is the way it should be done in a truly free system), they pass it out to their buddies in the banking system who make a profit by leasing the money to individual borrowers.

How is this crap insightful? The Fed makes short-term loans to individual banks. These loans are at low interest rates but must be paid back quickly also. Banks also deposit cash reserves with the Fed. There is no 'giving' of money. Even if there were, that's a silly sentiment. "Let's power the economy by giving away worthless paper currency to everyone." It would be worthless because everyone had it in equal measure without any value being attached.

The Federal Reserve also has a very powerful way of making a shit load of money: inflation. They just print a lot more money that they would be allowed to print if the system were regulated by just laws. Who or where does all this money goes to? I have no idea.

Yes, you don't have any idea. You're completely clueless about our financial system. You probably aren't aware that at any moment, there are a few hundred billion in coin and currency in circulation (600 bil or so in 2003). The US GDP in 2003, for instance, was something on the order of 11 trillion dollars. Search that document, it's there. Please note that we aren't even considering bank deposits, stock ownership or any other securities, like bonds.

An intelligent person might come to the conclusion that most money doesn't exist as currency at all. It's only written on paper or stored in a computer somewhere. You'd be right if you came to that conclusion. Therefore, the Fed printing 100 billion more of $100 bills would have a negligible effect anyway.

There's an even more compelling reason why your statement above is stupid. The Fed doesn't *GIVE OUT* money. The funds are either loaned in the short term, or given out of the member bank's deposits to the Fed. Therefore, there is no inflationary pressure associated with $100 bills going to Bank X since they are paid for one way or another.

So how exactly were they making money off of this? Answer: they aren't. They make most of their money off of check processing and ACH transfers which they act as the middleman for.

Essentially, we have the wolves in charge of the chicken coop. There're making a killing, so to speak, and there's nothing you and I can do about it. Other than complain.

Next time you make a comment about something, how about knowing something...anything about what it is you are commenting about?

Thank you.