In single central banks systems (e.g. Bank of England) then the final ledger for electronic money transfer is the adjustment of reserve account balances.

In the Federal Reserve System, there are 12 banks providing reserve accounts responsible for the banking in their region. How do these 12 ledgers operate such that money can transfer from one region to another? Is there an overall ledger?

Edit to clarify in response to answer:

An electronic transfer from bank A to bank B in Sterling results in an RTGS transfer between the banks' reserve accounts. The Bank of England debits one reserve account and credits the other - so that the total reserve balance remains constant.

In the federal reserve system, what happens when money transfers from bank A in region 1 to bank B in region 2? Does the federal reserve bank in region 1 simply reduce the reserve balance of bank A without an offsetting transaction on its balance sheet anywhere? Is there an overall ledger that manages the "total reserve", or is it simply a technical constraint of RTGS that the same amount of money is destroyed at one bank as is created at the other?

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    $\begingroup$ This question appears to be off-topic because it is general reference, see federalreserve.gov $\endgroup$ Nov 21, 2014 at 10:54
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    $\begingroup$ @EllieKesselman I can't see in the link a clear answer? Also could you elaberate on what you mean by "general reference". I was unsure myself if it was too narrow to be a good question, or in fact if there was too little chance of anyone knowing the answer. $\endgroup$
    – Corvus
    Nov 21, 2014 at 11:01

2 Answers 2


This is surprisingly subtle.

When, for instance, when bank A in the Richmond Federal Reserve district sends $1000 in reserves to bank B in the Minneapolis Federal Reserve district, reserves are taken out of bank A's account at the Richmond Fed and placed into bank B's account at the Minneapolis Fed.

Now, bank A's reserves are a liability on the books of the Richmond Fed, while bank B's reserves are a liability on the books of the Minneapolis Fed. Without any offsetting change, therefore, the process would result in the Richmond Fed discharging a liability and the Minneapolis Fed gaining a liability - and if this continued, regional Fed assets and liabilities could become highly mismatched.

The principle, then, is that there should be an offsetting swap of assets. It would be too complicated to swap actual assets every time there is a flow of reserves between banks in different districts. (There's over $3 trillion in transactions every day on Fedwire, the Fed's RTGS system - and if even a fraction of those are between different districts, the amounts are really enormous.) Instead, in the short run the regional Feds swap accounting entries in an "Interdistrict Settlement Account" (ISA). In the example above, the Minneapolis Fed's ISA position would increase by \$1000, while the Richmond Fed's ISA position would decrease by \$1000, to offset the transfer of liabilities.

So far, this is all very similar to the controversial TARGET2 system in the Euro area, in which large balances between national banks have recently been accumulating. The American system is different, however, because ISA entries are eventually settled via transfers of assets. Every April, the average ISA balance for each regional Fed over the past year is calculated, and this portion of the balance is settled via a transfer of assets in the System Open Market Account (the main pile of Fed assets, run by the New York Fed). Hence, if in April the Minneapolis Fed has an ISA balance of +\$500, but over the past year it had an average balance of +\$2000, its balance is decreased (by \$2000) to -\$1500, and it has an offsetting gain of \$2000 in SOMA assets.

As this example shows, since it is average balances over the past year that are settled, not the current balances, ISA balances do not necessarily go to zero every April. Historically, they were fairly tiny anyway, but since QE brought dramatic increases in reserves, these balances have sometimes been large and irregular. In the long run, though, the system prevents any persistent imbalances from accumulating.

(Note: the process in April is a little bit more complicated than I describe, since some minor transfers of gold certificate holdings are also involved. Basically, gold certificates are transferred between regional Feds to maintain a constant ratio of gold certificates to federal reserve notes; the transfers of SOMA assets are adjusted to account for this. Wolman's recent piece for the Richmond Fed is one of the few sources that describes the system in detail.)


Clearing for the US Banks is done through the Automated Clearinghouse System which is operated by the Fed. For transfers of central bank money, which would include transfers between reserve banks, the Federal Reserve also operates the Fedwire Funds Service which is an RTGS (Real Time Gross Settlement) system. This is similar to the Bank of England's RTGS system.

There is a detailed survey of the US system (including some of the other institutions involved for security transfer etc.) published by the IMF.

What happens between the federal reserve banks themselves is a very interesting question, and I haven't ever seen it clearly documented anywhere. However if we look at their balance sheets - I'm going to pick on Philadelphia here, either they are going to truck physical cash around (which is how it used to work in fact), or they are going to use the SOMA (System Open Market Account). The SOMA is managed by the Federal Reserve Bank of New York (which is also where foreign currency operations are handled), and on their balance sheet (p6) we can see an inter-district settlement account. So it certainly looks like they use the New York Federal Reserve as the final ledger.

  • $\begingroup$ Great start thanks - I've edited my question though to clarify the bit I don't understand in comparison to BoE RTGS. $\endgroup$
    – Corvus
    Nov 21, 2014 at 13:00
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    $\begingroup$ Edited to hopefully answer better - this is a very good question btw. - folks don't pay enough attention to the nuts and bolts of how all this works, if they did there wouldn't be so much nonsense floating around. $\endgroup$
    – Lumi
    Nov 21, 2014 at 17:02

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