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Hal S. Scott, Commentary, An Evaluation of the Case for Receiver Finality, in The United States Payment System: Efficiency, Risk and the Role of the Federal Reserve 181 (David B. Humphrey ed., 1990).

Abstract: Proceedings of a Symposium on the U.S. Payment System sponsored by the Federal Reserve Bank of Richmond. This commentary evaluates the case for mandating a receiver finality rule requiring banks to give customers unconditional credit at the time accounts are credited for incoming funds transfers but before settlement occurs. This rule would prevent banks from contracting with customers to make credits conditional on settlement. The commentary begins by showing that the importance of receiver finality depends on the degree of settlement finality. It then examines the basic economics of risk reduction in a funds transfer network and concludes that there is no need to displace contracts as to receiver finality under perfect market assumptions. It then examines whether there are market imperfections—externalities, misperceptions of risk, or the presence of a Fed settlement guarantee—which justify such displacement. It acknowledges that the presence of a widely perceived Fed guarantee gives inadequate incentives for risk reduction efforts by banks but concludes that mandated receiver finality is not the answer to this problem.