Whether electronic payment services such as stored-value cards will be regulated by the government depends on whether the company is liable for the deposits.

That's the opinion of Alton Gilbert, a vice president of the Federal Reserve Bank of St. Louis who addressed the Cato Institute's 14th annual monetary conference here last week.

"The firms whose liabilities are used for making payments will have bank charters, will be supervised and regulated as banks by government agencies, and will have access to the discount window," said Mr. Gilbert, who said he was speaking for himself, not the St. Louis Fed.

In Mr. Gilbert's model, a payment-service provider such as DigiCash that works with banks and licenses them to use its product would not require government supervision, because it is ultimately not liable for the money that customers deposit.

"We fit into his endorsed model, because we provide technology, not a payment system," said David Chaum, the chairman of DigiCash, who also spoke at the Cato conference.

But a payment system that does not ultimately have the backing of a bank would need government supervision, according to Mr. Gilbert.

For instance, students at Washington University in St. Louis can put value on their identification cards. Suppose a substantial amount of money accumulated on the cards and the university began investing that money. That would be a situation for government regulation, Mr. Gilbert said, because without it the student depositors would not have a government- regulated institution ensuring the safety and soundness of their deposits.

Washington University's payment system is small and sound, but with experts at the conference forecasting that eventually 20% of payment services could take place outside the banking industry, Mr. Gilbert noted, regulation may become a real concern.

"Lessons from history indicate that a central authority is necessary to deal with disruptions in the operation of the payment system that could result from banking panics," he said.

Mr. Smith writes for the Medill News Service.

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