Request for Comment on a Proposed Interim Policy Statement and a  Package of Short- and Long-Term Proposals
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Request for Comment on a Proposed Interim Policy Statement and a Package of Short- and Long-Term Proposals

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Federal Reserve Bankll Kof DallasHELEN E. HOLCOMBDALLAS, TEXASFIRST VICE PRESIDENT ANDCHIEF OPERATING OFFICER July 3, 2001 75265-5906Notice 01-51TO: The Chief Executive Officer of eachfinancial institution and others concernedin the Eleventh Federal Reserve DistrictSUBJECTRequest for Comment on aProposed Interim Policy Statement and a Package ofShort- and Long-Term Proposals Regarding the Board’sPayments System Risk Policy; Rescission of theBoard’s Interaffiliate Transfer PolicyDETAILSThe Board of Governors of the Federal Reserve System has requested public comment on thedesirability of retaining the current $50 million limit on the transaction size of book-entry securitiestransfers on Fedwire. Comments must be received by August 6, 2001, and must refer to Docket No.R-1110.The Board also has requested public comment on a change to the procedures for measuringdaylight overdrafts in depository institutions’ Federal Reserve accounts. The modification will allowdebits associated with electronic check presentment transactions to post at 1:00 p.m. local time. Com-ments must be received by August 6, 2001, and must refer to Docket No. R-1109.The Board also has issued and requested comment on an interim policy statement that allowsa depository institution that has a self-assessed net debit cap (average, above average, or high) to pledgecollateral to its Federal Reserve Bank to access additional daylight overdraft capacity above its net debitcap ...

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Federal Reserve Bank
ll K
of Dallas
HELEN E. HOLCOMB
DALLAS, TEXASFIRST VICE PRESIDENT AND
CHIEF OPERATING OFFICER July 3, 2001 75265-5906
Notice 01-51
TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Request for Comment on a
Proposed Interim Policy Statement and a Package of
Short- and Long-Term Proposals Regarding the Board’s
Payments System Risk Policy; Rescission of the
Board’s Interaffiliate Transfer Policy
DETAILS
The Board of Governors of the Federal Reserve System has requested public comment on the
desirability of retaining the current $50 million limit on the transaction size of book-entry securities
transfers on Fedwire. Comments must be received by August 6, 2001, and must refer to Docket No.
R-1110.
The Board also has requested public comment on a change to the procedures for measuring
daylight overdrafts in depository institutions’ Federal Reserve accounts. The modification will allow
debits associated with electronic check presentment transactions to post at 1:00 p.m. local time. Com-
ments must be received by August 6, 2001, and must refer to Docket No. R-1109.
The Board also has issued and requested comment on an interim policy statement that allows
a depository institution that has a self-assessed net debit cap (average, above average, or high) to pledge
collateral to its Federal Reserve Bank to access additional daylight overdraft capacity above its net debit
cap level. Comments must be received by August 6, 2001, and must refer to Docket No. R-1107.
The Board also has requested comment on a proposal that would modify the criteria used to
determine the U.S. capital equivalency for foreign banking organizations (FBOs). Specifically, the
proposal would accomplish the following:
(1) Eliminate the Basel Capital Accord (BCA) criteria used in the current policy to determine
U.S. capital equivalency for FBOs,
(2) Replace the BCA criteria with the strength of support assessment rankings and financial
holding company status in determining U.S. capital equivalency for FBOs, and
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.- 2 -
(3) Raise the percentage of capital used in calculating U.S. capital equivalency for certain
FBOs.
Comments must be received by August 6, 2001, and must refer to Docket No. R-1108.
In addition, the Board has requested public comment on the benefits and drawbacks of
various policy options that it is evaluating as part of a potential longer-term direction for its payments
system risk policy. The longer-term policy options include the following:
(1) Lowering single-day net debit cap levels to approximately the current two-week average
cap levels and eliminating the two-week average net debit cap,
(2) Implementing a two-tiered pricing regime for daylight overdrafts such that institutions
pledging collateral to the Reserve Banks pay a lower fee on their collateralized daylight
overdrafts than on their uncollateralized daylight overdrafts, and
(3) Monitoring in real time all payments with settlement-day finality and rejecting those
payments that would cause an institution to exceed its net debit cap or daylight overdraft
capacity level.
Comments must be received by October 1, 2001, and must refer to Docket No. R-1111.
Please address comments to any of the above requests to Jennifer J. Johnson, Secretary,
Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Wash-
ington, DC 20551. Also, you may mail comments electronically to the following e-mail address:
regs.comments@federalreserve.gov.
Finally, the Board is rescinding section I.F., entitled Interaffiliate Transfers, of its payments
system risk policy, effective January 1, 2002. The interaffiliate transfer policy was adopted in 1987 to
address potential risks resulting from a lack of an arm’s length credit decision among affiliates.
A PDF copy (requires Adobe Acrobat® for viewing) of the Board’s notices as they appear on
pages 30193–214, Vol. 66, No. 108 of the Federal Register dated June 5, 2001, is available on our web
site at http://www.dallasfed.org/banking/notices/index.html. Additionally, you may obtain a hard
copy of the documents by contacting the Public Affairs Department at (214) 922-5254.
MORE INFORMATION
For more information, please contact this Bank’s Reserve and Risk Management Division at (214) 922-5584.
For additional copies of this Bank’s notice, contact the Public Affairs Department at (214) 922-5254 or
.access District Notices on our web site at http://www.dallasfed.org/banking/notices/index.html
Sincerely,Federal Register/Vol. 66, No. 108/Tuesday, June 5, 2001/Notices 30193
transaction size of book-entry securities
transfers on Fedwire.
EFFECTIVE DATE: Comments must be
received by August 6, 2001.
ADDRESSES: Comments, which should
refer to Docket No. R–1110, may be
mailed to Ms. Jennifer J. Johnson,
Secretary, Board of Governors of the
Federal Reserve System, 20th and C
Streets, NW, Washington, DC 20551 or
mailed electronically to
regs.comments@federalreserve.gov.
Comments addressed to Ms. Johnson
also may be delivered to the Board’s
mailroom between 8:45 a.m. and 5:15
p.m. and to the security control room
outside of those hours. Both the
mailroom and the security control room
are accessible from the courtyard
entrance on 20th Street between
Constitution Avenue and C Street, NW.
Comments may be inspected in Room
MP–500 between 9:00 a.m. and 5:00
p.m. weekdays, pursuant to § 261.12,
except as provided in § 261.14, of the
Board’s Rules Regarding Availability of
Information, 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: Paul
Bettge, Associate Director (202/452–
3174), Stacy Coleman, Manager (202/
452–2934), or Doug Conover, Financial
Services Analyst (202/452–2887),
Division of Reserve Bank Operations
and Payment Systems.
SUPPLEMENTARY INFORMATION: This is
one of five notices regarding payments
system risk that the Board is issuing for
public comment today. Two near-term
proposals concern the net debit cap
calculation for U.S. branches and
agencies of foreign banks (Docket No. R–
1108) and modifications to the
procedures for posting electronic check
presentments to depository institutions’
Federal Reserve accounts for purposes
of measuring daylight overdrafts (Docket
No. R–1109). In addition, the Board is
requesting comment on the benefits and
drawbacks to several potential longer-
term changes to the Board’s payments
system risk (PSR) policy, including
lowering self-assessed net debit caps,
eliminating the two-week average caps,
implementing a two-tiered pricing
FEDERAL RESERVE SYSTEM system for collateralized and
uncollateralized daylight overdrafts, and
[Docket No. R–1110] rejecting payments with settlement-day
finality that would cause an institution
Policy Statement on Payments System
to exceed its daylight overdraft capacity
Risk; $50 Million Fedwire Securities
level (Docket No. R–1111). The Board is
Transfer Limit
also issuing today an interim policy
statement and requesting comment onAGENCY: Board of Governors of the
the broader use of collateral for daylightFederal Reserve System.
overdraft purposes (Docket No. R–1107).ACTION: Request for comment on policy.
Furthermore, to reduce burden
SUMMARY: The Board is requesting associated with the PSR policy, the
comment on the desirability of retaining Board recently rescinded the
the current $50 million limit on the interaffiliate transfer (Docket No. R–
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1106) and third-party access policies could deliver them. Partial deliveries, practices. Under the PSA good delivery
(Docket No. R–1100). those for less than the full amount of the guidelines, dealers no longer needed to
The Board requests that in filing trade obligation, were typically returned stockpile securities. As soon as an
comments on these proposals, to the sending institution. The inventory of $50 million in a particular
commenters prepare separate letters for incentives to minimize fail-to-deliver security was obtained, dealers could
each proposal, identifying the costs and maximize fail-to-receive immediately deliver that $50 million to
appropriate docket number on each. benefits strongly influenced dealers’ a different counterparty, receiving funds
This will facilitate the Board’s analysis decisions regarding their settlement of to cover any overdraft associated with
3of all comments received. government securities trades. Because the original receipt of that security. In
fail costs are proportional to the size of effect, the transfer limit and the PSA’sI. Background
modified delivery guidelines allowedunfulfilled obligations, dealers typically
Beginning in 1985, the Board adopted organized their deliveries to fulfill their dealers to accept partial deliveries and
and subsequently modified a policy to largest obligations first. In addition, in effectively reduced the maximum size of
reduce the risks that payment systems order to maximize fail benefits, a dealer any required position to $50 million.
present to the Federal Reserve Banks, to selling and buying the same type of Nonetheless, without fees on daylight
the banking system, and to other sectors security could strategically delay its overdrafts, dealers could continue to
of the economy. An integral component deliveries of that security until the end stockpile securities without incurring
of the PSR policy was to control of the day, hoping that counterparties any explicit costs. Most dealers,
depository institutions’ use of intraday trying to deliver the same securities therefore, did not change their behavior
Federal Reserve credit, commonly would be unable to settle their significantly, and the limit had very
referred to as ‘‘daylight credit’’ or little impact on the clearing banks’ useobligations before the close of the
4‘‘daylight overdrafts.’’ The Board’s securities transfer system. These of daylight credit.
intention was to address the Federal incentives often led dealers to stockpile When the Board began charging a fee
for daylight overdrafts in 1994, mostReserve’s risk as well as risks on various large amounts of securities until very
clearing banks decided to pass on thesetypes of private-sector networks, near the end of the day.
To stockpile large amounts of charges to their government securitiesprimarily large-dollar payments
securities until very near the end of the dealers. Because government securitiessystems.
As part of modifications to the PSR day in a delivery-versus-payment dealers generally relied heavily on
policy in 1988, the Board imposed a $50 environment, dealers often used intraday credit to conduct their
million limit on the par value of daylight credit at their clearing banks. transactions, the fee provided a strong
individual book-entry securities The clearing banks, in turn, had to hold incentive for most major dealers to send
transfers on the Fedwire system (52 FR positive balances in their Federal securities earlier in the day while the
129255, August 6, 1987). The purpose of Reserve accounts or use Federal Reserve limit and the PSA delivery guidelines
allowed dealers to send and requiredthe $50 million limit was to encourage daylight credit. As a dealer accumulates
their counterparties to accept partialgovernment securities dealers to split securities and holds them during the
deliveries in $50 million increments. Aslarge trades into multiple partial day to deliver on its largest obligations
dealers began to send securities earlierdeliveries and, thereby, reduce first, its overdraft becomes larger and
in the day, Federal Reserve daylightsubsequent book-entry securities-related lasts longer. In the absence of charges
5overdrafts decreased substantially.daylight overdrafts. The Board for daylight credit, however, the dealers’
anticipated that government securities had no incentive to economize on II. Effectiveness of the $50 Million Limit
dealers’ practice of building securities daylight credit but had a strong
As part of a broad review of theinventories to meet large trade incentive to avoid the substantial costs
Federal Reserve’s daylight creditobligations would diminish and book- associated with failing to deliver on
policies, the Board considered theentry securities transfer volume would large obligations. In addition, because
effectiveness of the $50 million limitbe distributed more evenly throughout securities deliveries were often delayed
policy, with a focus on whether thethe day. The Board recognized, until near the close of the Fedwire book-
limit imposes an undue regulatoryhowever, that the effectiveness of the entry security transfer system, the
burden. To understand better the$50 million limit depended on dealers Federal Reserve frequently extended the
industry’s view of the limit, Federalaccepting multiple deliveries for the system’s operating hours.
Reserve staff met with representatives ofAlthough the Board intended the $50completion of a single trade obligation.
primary dealers, clearing banks, andmillion limit to promote the acceptanceAs a result, Federal Reserve staff worked
industry utilities. Federal Reserve staffof partial deliveries, dealers had limitedwith the Public Securities Association
incentive to change their delivery(PSA) to develop delivery guidelines
5 Because the limit forced receiving dealers to
that incorporated necessary changes accept multiple deliveries for the settlement of one
2 3 Fail costs are the costs dealers incur if they failrelated to the $50 million limit. trade, the receiver could not force the sender to
to deliver securities to a counterparty on the agreedPrior to the implementation of the $50 stockpile securities. For example, if a dealer had an
settlement day. These costs can be significant obligation to deliver $100 million of a certainmillion limit, the PSA’s delivery because a dealer that fails to deliver securities may security, expected to receive $90 million of theguidelines required trade obligations to have to obtain overnight financing as well as forego same issue, and already held $10 million of that
any interest that the security accrues between thebe delivered in full. As a result, dealers security in its account, delivery of its obligation
agreed and actual settlement days. The purchasingoften had to accumulate securities in the would be dependent upon first receiving the
counterparty that does not receive its securities on expected $90 million, if a limit were not present.full amount of the trade before they the agreed settlement day benefits because that With the limit in place, the dealer could
party typically receives the accrued interest on immediately forward $50 million of that security as
1 The $50 million limit does not apply to original those securities, yet postpones financing the soon as it was received, rather than waiting for the
issue deliveries of book-entry securities from a securities until they are actually delivered. entire $90 million. To the extent that a dealer buys
Reserve Bank to a depository institution or 4 Because many government securities dealers securities from many counterparties and that
transactions sent to or by a Reserve Bank in its take long and short positions in the same security deliveries from these counterparties are dependent
capacity as fiscal agent for the United States or among a relatively small group of counterparties, a on receipt of their own purchases, the limit allows
international organizations. dealer could be expected to deliver a security to one deliveries to occur earlier than otherwise possible,
2 The PSA is now known as the Bond Market counterparty and receive the same security from reducing the liquidity required to settle the total
Association. another counterparty. amount of transactions.
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learned that many government banks, net of any benefits from reduced posting times for ECP transactions often
securities dealers and their clearing overdrafts? create a disincentive for depository
banks support retaining the $50 million 3. Does the limit promote specific institutions to use Federal Reserve
limit. These representatives believe that benefits in the government securities electronic check presentment services,
removing the limit could increase market other than reduced overdrafts? and the Board proposes to remove
position building and securities-related barriers that may discourage their use.
IV. Competitive Impact Analysis
overdrafts despite the existence of EFFECTIVE DATE: Comments must be
Under its competitive equity policy,daylight overdraft fees. In addition, the received by August 6, 2001.
the Board assesses the competitiverepresentatives stated that removing the ADDRESSES: Comments, which should
impact of changes that have alimit would likely require costly system refer to Docket No. R–1109, may be
substantial effect of payments systemchanges throughout the industry. Given mailed to Ms. Jennifer J. Johnson,
6participants. The Board believes thatthat the industry bears a significant Secretary, Board of Governors of the
retention of the $50 million securitiesportion of the costs and benefits of the Federal Reserve System, 20th and C
transfer limit will have no adverse effectlimit, both in terms of transaction fees Streets, NW, Washington, DC 20551 or
on the ability of other service providersand reduced overdraft fees, the support mailed electronically to
to compete effectively with the Federalof the limit voiced by industry regs.comments@federalreserve.gov.
Reserve Banks in providing similarrepresentatives reflects their perception Comments addressed to Ms. Johnson
transfer services.that the limit has a positive net effect on also may be delivered to the Board’s
the government securities settlement mailroom between 8:45 a.m. and 5:15V. Paperwork Reduction Act
system. p.m. and to the security control room
In accordance with the PaperworkIndustry representatives indicated outside of those hours. Both the
Reduction Act of 1995 (44 U.S.C. ch.that removal of the limit would likely mailroom and the security control room
3506; 5 CFR 1320 appendix A.1), thelead the industry to demand that are accessible from the courtyard
Board has reviewed the request forsecurities trades be settled in full and to entrance on 20th Street between
comments under the authority delegatedreject partial deliveries. While current Constitution Avenue and C Street, NW.
to the Board by the Office ofdelivery guidelines encourage Comments may be inspected in Room
Management and Budget. The collectionacceptance of partial deliveries, MP–500 between 9:00 a.m. and 5:00
of information pursuant to the p.m. weekdays, pursuant to § 261.12,industry representatives expressed
Paperwork Reduction Act contained in except as provided in § 261.14, of theconcern that there would be no
the policy statement will not unduly Board’s Rules Regarding Availability oftechnical mechanism to enforce these
burden depository institutions. Information, 12 CFR 261.12 and 261.14.guidelines. The Board believes the $50
By order of the Board of Governors of themillion limit on book-entry securities FOR FURTHER INFORMATION CONTACT: Paul
Federal Reserve System, May 30, 2001.transfers in combination with daylight Bettge, Associate Director (202/452–
Jennifer J. Johnson,overdraft fees has been effective in 3174), Stacy Coleman, Manager (202/
reducing daylight overdrafts. Because Secretary of the Board. 452–2934), or Jeffrey Yeganeh, Senior
the limit appears to have a net positive Financial Services Analyst (202/728–[FR Doc. 01–13981 Filed 6–4–01; 8:45 am]
effect, the Board is disposed to retaining 5801), Division of Reserve BankBILLING CODE 6210–01–P
the limit. The Board, however, would Operations and Payment Systems.
like to ensure that it considers the SUPPLEMENTARY INFORMATION: This is
perspectives of all parties before making FEDERAL RESERVE SYSTEM one of five notices regarding payments
a final determination regarding the system risk that the Board is issuing for
[Docket No. R–1109]
retention of this limit. public comment today. Two near-term
proposals concern the net debit capPolicy Statement on Payments SystemIII. Request for Comment
calculation for U.S. branches andRisk; Modifications to Daylight
The Board is proposing to maintain its agencies of foreign banks (Docket No. R–Overdraft Posting Rules for Electronic
current policy limiting the size of 1108) and the book-entry securitiesCheck Presentments
individual book-entry security transfers transfer limit (Docket No. R–1110). In
AGENCY: Board of Governors of theon Fedwire to $50 million in par value. addition, the Board is requesting
Federal Reserve System.The Board is requesting comment on all comment on the benefits and drawbacks
aspects of the $50 million limit as well ACTION: Request for comment on policy. to several potential longer-term changes
as on the following questions: to the Board’s payments system risk
SUMMARY: The Board is requesting1. Should the limit be retained? (PSR) policy, including lowering self-
comment on a change to the proceduresIf yes, is $50 million a reasonable assessed net debit caps, eliminating the
for measuring daylight overdrafts inlevel for the limit? Do the benefits of the two-week average caps, implementing a
depository institutions’ Federal Reservelimit support a reduction of the limit to two-tiered pricing system for
accounts. The Board proposes to modify$25 million? Or, would a higher limit collateralized and uncollateralized
the procedures to allow debitsreduce transaction costs but maintain daylight overdrafts, and rejecting
associated with electronic checkthe existing benefits of the limit? Would payments with settlement-day finality
presentment (ECP) transactions to postchanging the limit require costly system that would cause an institution to
1at 1:00 p.m. local time. The currentchanges? exceed its daylight overdraft capacity
If no, what would be the effect of level (Docket No. R–1111). The Board is
6 These assessment procedures are described in
eliminating the $50 million limit on also issuing today an interim policythe Board’s policy statement entitled ‘‘The Federal
delivery fails, daylight overdrafts, and statement and requesting comment onReserve in the Payments System’’ (55 FR 11648,
March 29, 1990).dealer costs? In particular, would the broader use of collateral for daylight
1 In the event an electronic check presentment iseliminating the limit require costly overdraft purposes (Docket No. R–1107).
delayed past 12:00 p.m. local time, the Reservesystem changes? Furthermore, to reduce burden
Banks will post the transaction on the next clock
2. Does the limit impose any associated with the PSR policy, thehour that is at least one hour after presentment
significant costs on dealers or clearing takes place but no later than 3:00 p.m. local time. Board recently rescinded the
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interaffiliate transfer (Docket No. R– hour that is at least one hour after times associated with ECP transactions
1106) and third-party access policies presentment takes place, beginning at should not create significant, if any,
(Docket No. R–1100). 11:00 a.m. Eastern Time (ET) and no additional credit risk for the Reserve
3The Board requests that in filing later than 3:00 p.m. local time. Because Banks.
comments on these proposals, the Reserve Banks generally deliver
II. Posting Times for ECP Transactions
commenters prepare separate letters for electronic check presentments in the
The Board proposes modifying theeach proposal, identifying the morning, the corresponding debits occur
daylight overdraft posting rules to allowappropriate docket number on each. at 11:00 a.m. ET. As a result, for many
debits associated with ECP transactionsThis will facilitate the Board’s analysis depository institutions, the posting
to post at 1:00 p.m. local time in orderof all comments received. times for electronic check presentments
to remove the disincentive created byare earlier than the posting times
I. Background the current posting rules for depositoryassociated with their paper check
The Board’s PSR policy establishes institutions to use Federal Reservepresentments.
4electronic check presentment services.maximum limits (net debit caps) and The often earlier debit posting times
A 1:00 p.m. local time posting timefees on daylight overdrafts in depository associated with electronic check
should remove the disincentive to moveinstitutions’ accounts at Federal Reserve presentments have caused some
to electronic check presentment servicesBanks. When the Board adopted depository institutions to incur daylight
created by the current posting rules. Thedaylight overdraft fees, the Federal overdrafts earlier in the day and, in
Reserve Banks generally deliverReserve Banks began measuring many cases, for longer periods of time.
electronic check presentment files bydepository institutions’ intraday Because the Reserve Banks charge
10:00 a.m. ET; and, therefore, manyaccount balances according to a set of depository institutions a fee for the
depository institutions currently receive‘‘posting rules’’ established by the amount and duration of their Federal
5the related debits at 11:00 a.m. ET. ForBoard. These rules comprise a schedule Reserve daylight credit use, the daylight
many depository institutions, especiallyfor the posting of debits and credits to overdraft charges of some institutions
those not located in the Eastern Timeinstitutions’ Federal Reserve accounts that have moved to electronic check
2 zone, the 11:00 a.m. ET posting time isfor different types of payments. The services have grown substantially. As a
substantially earlier than the postingBoard’s objectives in designing the result, some depository institutions
times associated with their paper checkposting rules include minimizing have asserted that the increases in their
presentments. A posting time of 1:00intraday float, facilitating depository daylight overdraft charges have reduced
p.m. local time should reduce orinstitutions’ monitoring and control of or eliminated the benefits of using
eliminate the increase in daylighttheir cash balances during the day, and Federal Reserve electronic check
overdraft charges potentially created byreflecting the legal rights and services.
the difference between the posting timesobligations of parties to payments. The The Federal Reserve is interested in
of ECP and paper check presentmentBoard’s objective of minimizing removing barriers that may discourage
transactions.intraday float is especially important in depository institutions from using
The Board also considered postinglight of the daylight overdraft fee, which electronic check services. For several
ECP debits at the time the paying bank’sgives intraday credit an explicit value. years, the Federal Reserve has been
paper check presentments would haveThe posting rules attempt to eliminate working on various initiatives to apply
been posted. The problem withaggregate Federal Reserve intraday float electronic technologies to the check
matching the posting times of ECP andbecause such float would be equivalent collection process to gain efficiencies
paper check presentments is that, overto unpriced Federal Reserve daylight and to reduce the associated costs and
time, as electronic check presentmentscredit. risks. Electronic check services provide
replace the physical delivery of theAs part of a broad review of its PSR operational efficiencies, improve
paper checks for a larger proportion ofpolicies, the Board evaluated the accuracy of information, reduce costs,
banks and courier routes are modified oreffectiveness of the current posting rules improve the likelihood of timely
eliminated, there is no longer aand found these rules to be generally presentment, and improve opportunities reasonable basis for determiningeffective and well understood by the for accessing and using cash specific ECP posting times for eachindustry. In reviewing the posting rules, management information. The Board is depository institution. Moreover, ahowever, the Board found that the requesting comment on a proposed single debit posting time in each timeposting times for ECP transactions often change to the posting times for ECP zone for ECP transactions is morecreate a disincentive for depository transactions to remove a barrier to the straightforward than a debit postinginstitutions to use Federal Reserve use of ECP. time that matches the posting time ofelectronic check services. The Federal The Board also notes that its daylight paper check presentments. InReserve Banks deliver the majority of credit policies are primarily intended to determining a single debit posting time,electronic check presentments in the address intraday risk to the Federal the Board considered the aggregatemorning, and the delivery of the ECP Reserve arising from daylight overdrafts. value of checks posted to depository
files constitutes legal presentment of the Most transactions that lack settlement- institutions’ Federal Reserve accounts
checks under the terms of the Federal day finality, such as checks, however, by each hour of the day. Currently, the
Reserve’s uniform Operating Circular 3. pose primarily interday, rather than Reserve Banks post the vast majority of
In accordance with the Board’s intraday, risk. Modifying the posting check transactions, on average
objectives in designing the posting
approximately 90 percent, by 1:00 p.m.
rules, the current posting rules stipulate 3 On the day a paying bank receives a cash item local time. Because the Reserve Banks
from a Reserve Bank, it shall settle for the item sothat debits to depository institutions’
already post most checks by 1:00 p.m.that the proceeds of the settlement are available toFederal Reserve accounts for check
its Administrative Reserve Bank, or return the item,
presentments occur on the next clock 4by the latest of (1) the next clock hour that is at least The Reserve Banks would modify the operating
one hour after the paying bank receives the item; circulars as necessary.
2 5See ‘‘Federal Reserve Policy Statement on (2) 9:30 a.m. Eastern Time; or (3) such later time The Reserve Banks usually deliver electronic
Payments System Risk,’’ section I.A (57 FR 47093, as provided in the Reserve Banks’ operating check presentment files by 12:00 p.m. ET in the
October 14, 1992). circulars (12 CFR 210.9(b)). Pacific Time zone.
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local time, the Board believes that posting time that should not adversely requested comment on whether these
applying this posting time to ECP affect depository institutions’ account legal differences between the Reserve
transactions should minimize any management procedures and practices Banks and the private sector provided
disincentive created by the posting rules or Federal Reserve credit risk. The the Reserve Banks with a competitive
to move to electronic check presentment Board requests comment on all aspects advantage and, if so, whether these legal
services. of the proposed modification to the differences should be reduced or
The primary drawback of posting ECP posting rules. The Board is also eliminated (63 FR 12700, March 16,
debits later in the day is the associated requesting specific comments on the 1998). Based on an analysis of the
shift in posting credits to depository following questions: comments received, the Board
institutions’ Federal Reserve accounts 1. Are there significant benefits or concluded that these legal disparities do
6for check deposits to later in the day. drawbacks associated with a posting not materially affect the efficiency of or
Institutions must choose one of two time of 1:00 p.m. local time not competition in the check collection
check credit posting options: (1) All identified in this notice? system (63 FR 68701, December 14,
credits posted at a single float-weighted 2. Does the proposed posting time 1998). The proposed posting ruleposting time or (2) fractional credits provide Federal Reserve Banks an change for ECP transactions decreases,posted throughout the day. The first inappropriate competitive advantage rather than exacerbates, the legaloption allows an institution to receive relative to the ability of private-sector disparities between the Reserve Banksall of its check credits at a single time, banks or other service providers to and the private sector. The Board,which may not necessarily fall on a compete in the provision of check
therefore, believes that the proposedclock hour, for each type of cash letter. collection services? If so, how?
change would not have a direct orThe second option lets the institution
IV. Competitive Impact Analysis material adverse effect on the ability ofreceive a portion of its available check
other service providers to competecredits on the clock hours between The Board has established procedures
effectively with the Reserve Banks’11:00 a.m. and 6:00 p.m. ET. The option for assessing the competitive impact of
payments services.selected by an institution applies to all rule or policy changes that have a
of its check deposits, including those for substantial effect on payments system V. Paperwork Reduction Act
its respondents. Because the crediting 8participants. Under these procedures,
fractions and single float-weighted the Board assesses whether a change In accordance with the Paperwork
posting times are based upon the would have a direct and material Reduction Act of 1995 (44 U.S.C. ch.
Reserve Banks’ ability to present checks adverse effect on the ability of other 3506; 5 CFR 1320 Appendix A.1), the
and obtain settlement from payor service providers to compete effectively Board has reviewed the policy statement
institutions, posting times for check with the Federal Reserve in providing under the authority delegated to the
credits would become concentrated similar services due to differing legal Board by the Office of Management and
around 1:00 p.m. local time as more powers or constraints, or due to a Budget. No collections of information
depository institutions began using dominant market position of the Federal pursuant to the Paperwork Reduction
Federal Reserve electronic check Reserve deriving from such differences. Act are contained in the policy
services. Consequently, depository If no reasonable modifications would statement.
institutions would receive their check mitigate the adverse competitive effects,
credits somewhat later than they do VI. Policy Statement on Paymentsthe Board will determine whether the
7today. In addition, changes to the System Riskexpected benefits are significant enough
posting rules might entail some costs for to proceed with the change despite the
The Board proposes to amend sectiondepository institutions that may have adverse effects.
I.A. under the heading ‘‘Modifieddeveloped internal monitors and To obtain settlement from paying
Procedures for Measuring Daylightcontrols for the management of their banks for checks presented, the Reserve
Overdrafts’’ as follows with changesdaily account balances around current Banks debit directly the account of the
identified by italics:posting times; however, the Board paying bank or its designated
believes that such costs would be * * * * *correspondent (12 CFR 210.9(b)(5)). In
minimal. contrast, a paying bank settles for Modified Procedures for Measuring
checks presented by a private-sectorIII. Request for Comment 3Daylight Overdrafts
bank for same-day settlement by
The Board proposes changing the
sending a Fedwire funds transfer to the Opening Balance (Previous Day’s
posting times associated with ECP
presenting bank or by another agreed- Closing Balance)
transactions to 1:00 p.m. local time.
upon method (12 CFR 229.36(f)(2)). In
This revised posting time would allow Post at 1:00 p.m. Local Time:addition, the Reserve Banks have the
the Federal Reserve to remove the
right to debit the account of the paying —Electronic check presentmentsbarriers associated with the current
bank for settlement of checks on the 3 The posting changes do not affect theposting rules for ECP transactions while
next clock hour that is at least one hour
overdraft restrictions and overdraft-providing a single and straightforward
after presentment (12 CFR 210.9(b)(2))
measurement provisions for nonbank banks
whereas a paying bank becomes
6 The Federal Reserve calculates the posting times established by the Competitive Equality
accountable to a private-sectorfor check credits based on surveys of check Banking Act of 1987 and the Board’s
presentments in each time zone. collecting bank if it does not settle for Regulation Y (12 CFR 225.52).
7 If the Board modifies the posting rules to permit the check by the close of Fedwire on the
Reserve Banks to post debits for ECP transactions By order of the Board of Governors of theday of presentment (12 CFR
at 1:00 p.m. local time, the Federal Reserve will Federal Reserve System, May 30, 2001.229.36(f)(2)). In March 1998, the Boardupdate the credit schedule concurrent with the
Jennifer J. Johnson,effective date of the policy change and, as needed,
8thereafter. As a result, aggregate net intraday float These procedures are described in the Board’s Secretary of the Board.
would continue to be close to zero because the policy statement ‘‘The Federal Reserve in the
[FR Doc. 01–13980 Filed 6–4–01; 8:45 am]amounts of intraday credit and debit float created Payments System,’’ as revised in March 1990. (55
for brief periods generally would offset one another. FR 11648, March 29, 1990). BILLING CODE 6210–01–P
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policy is a program to control the use of overdraft capacity of affiliatedFEDERAL RESERVE SYSTEM
intraday Federal Reserve credit, institutions in one or more institutions
[Docket No. R–1106] commonly referred to as daylight provided that: (1) Each sending
overdrafts. The PSR policy establishes institution’s board of directors
Policy Statement on Payments System maximum limits (net debit caps) on specifically approves, at least once each
Risk Interaffiliate Transfers daylight overdrafts in depository year, the intraday extension of credit to
institutions’ accounts at Federal Reserve the specified affiliate(s) and sends aAGENCY: Board of Governors of the
Banks. copy of the directors’ resolution to itsFederal Reserve System.
At the time it adopted the PSR policy, Federal Reserve Bank and (2) during
ACTION: Policy statement.
the Board also explored allowing regular examination, each sending
depository institutions affiliated institution’s primary federal supervisorSUMMARY: The Board is rescinding
through common holding company reviews the timeliness of board-of-section I.F., entitled Interaffiliate
ownership to consolidate their Fedwire directors resolutions, the establishmentTransfers, of its payments system risk
activity and net debit caps for the by the institution of limits on credit(PSR) policy. The Board adopted the
purpose of monitoring compliance with extensions to each affiliate, theinteraffiliate transfer policy in 1987 to
the PSR policy. The Board determined, establishment by the institution ofaddress potential risks resulting from a
however, that while the operations of controls to ensure that credit extensionslack of an arm’s-length credit decision
some holding companies are centrally stay within such limits, and whetheramong affiliates.
managed, the regulatory and credit extensions have in fact stayedEFFECTIVE DATE: January 1, 2002.
supervisory framework within which within those limits (52 FR 29255,
FOR FURTHER INFORMATION CONTACT: Paul
August 6, 1987).their subsidiaries operate is based onBettge, Associate Director (202/452–
the separate corporate charter of each3174) or Stacy Coleman, Manager (202/ II. Discussion
subsidiary. Therefore, the PSR policy452–2934), Division of Reserve Bank Recognizing that significant changesrequires that depository institutions beOperations and Payment Systems. have occurred in the banking, payments,monitored for compliance on a separate
SUPPLEMENTARY INFORMATION: The Board and regulatory environment in the pastlegal-entity basis.
is issuing this notice in conjunction few years, the Board decided to conductAlthough the Board prohibited
with five other notices requesting a broad review of the Federal Reserve’saffiliated depository institutions from
comment on the PSR policy. Three near- daylight credit policies. As part of itsoutright consolidation of their Fedwire
term proposals concern the net debit review, the Board considered theactivity and net debit caps, a depository
cap calculation for U.S. branches and effectiveness of the interaffiliate transferinstitution could simulate consolidation
agencies of foreign banks (Docket No. R– policy. Because of the policy’s limitedby sending Fedwire funds transfers to
1108), modifications to the procedures use and the credit risk managementan affiliated institution in amounts not
for posting electronic check techniques available to the Reserveto exceed its net debit cap. The
presentments to depository institutions’ Banks, the Board decided to rescind theinstitution would have to repay the
Federal Reserve accounts for purposes policy.funds before the end of the day. The
of measuring daylight overdrafts (Docket The Board evaluated the interaffiliateBoard, however, identified two potential
No. R–1109), and the book-entry transfer policy’s effectiveness and foundrisks associated with depository
securities transfer limit (Docket No. R– that very few institutions are usinginstitutions transferring their net debit
1110). In addition, the Board is interaffiliate transfers to consolidatecaps to affiliated institutions: Increased
requesting comment on the benefits and their Fedwire activity and daylightcredit risk to the Federal Reserve Banks
drawbacks to several potential longer- overdraft capacity. The Board also notesand systemic risk among affiliated
term changes to the Board’s policy, that those institutions engaging indepository institutions, resulting from a
including lowering self-assessed net interaffiliate transfers, primarily insuredlack of an arm’s-length relationship
debit caps, eliminating the two-week depository institutions owned by theamong affiliates. The Board believed
average caps, implementing a two-tiered same bank holding company, appear tothat this lack of an arm’s-length
be managing their Federal Reservepricing system for collateralized and relationship among affiliates, in some
accounts prudently. In addition,uncollateralized daylight overdrafts, and cases, might weaken the independence
subsequent to the adoption of therejecting payments with settlement-day of credit judgment exercised by one
interaffiliate transfer policy, thefinality that would cause an institution affiliate in advancing funds to another.
Financial Institutions Reform, Recovery,to exceed its daylight overdraft capacity The concern that common ownership
and Enforcement Act of 1989 includedlevel (Docket No. R–1111). The Board is erodes an arm’s-length credit decision
a cross-guarantee provision that allowsalso issuing today an interim policy grew out of the bank failures in the
the Federal Deposit Insurancestatement and requesting comment on 1930s, which pointed to the relationship
Corporation (FDIC) to recover part of itsthe broader use of collateral for daylight between depository institutions and
resolution cost by seekingoverdraft purposes (Docket No. R–1107). their affiliates as a source of instability
reimbursement from affiliatedFurthermore, to reduce burden 1for the depository institutions.
2institutions. The Board notes that,associated with the PSR policy, the To address these risks, the Board
under the cross-guarantee provisions, anBoard recently rescinded the third-party modified the PSR policy in 1987 to
insured depository institution isaccess policy (Docket No. R–1100). permit interaffiliate transfers that are
generally liable for any loss incurred byintended to concentrate the daylightI. Background the FDIC in connection with the default
In April 1985, the Board adopted the of a commonly controlled insured1 In addition, the Basle Committee’s Core
PSR policy to reduce the risks that large- depository institution. Furthermore, thePrinciples requires that transactions between banks
dollar payments systems presented to and related companies and individuals should be Federal Reserve Banks retain the right to
on an arm’s length basis, be effectively monitored,the Federal Reserve Banks, to the reduce or eliminate the credit exposure
and appropriate steps should be taken to mitigatebanking system, and to other sectors of that they will accept for any depositoryrisks. Core Principles for Effective Banking
the economy (50 FR 21120, May 22, Supervision, Basle Committee on Banking
21985). An integral component of this Supervision, September 1997. 12 U.S.C. 1468.
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institution by reducing the institution’s appropriately addressed through the are accessible from the courtyard
net debit cap or monitoring the existing supervisory process, the Board entrance on 20th Street between
institution’s Fedwire funds transfers is rescinding the interaffiliate transfer Constitution Avenue and C Street, NW.
and enhanced net settlement policy, part I, section F of the Policy Comments may be inspected in Room
4transactions in real time. The Board Statement on Payments System Risk. MP–500 between 9 a.m. and 5 p.m.
believes that these controls mitigate any Upon rescission of the interaffiliate weekdays, pursuant to § 261.12, except
increased credit risk to the Federal transfer policy, depository institutions as provided in § 261.14, of the Board’s
Reserve or systemic risk from will no longer be required to submit a Rules Regarding Availability of
interaffiliate transfers intended to board-of-directors resolution to their Information, 12 CFR 261.12 and 261.14.
simulate daylight overdraft cap Reserve Banks; however, institutions are FOR FURTHER INFORMATION CONTACT: Paul
consolidation. expected to comply with supervisory Bettge, Associate Director (202/452–
The Board also believes that any and regulatory requirements regarding 3174) or Stacy Coleman, Manager (202/
institution-specific supervisory affiliate relationships and exposures, 452–2934), Division of Reserve Bank
concerns associated with interaffiliate including sections 23A and 23B, as Operations and Payment Systems.
credit extensions are more appropriately described in 12 CFR 250.248, 12 CFR
SUPPLEMENTARY INFORMATION: This isaddressed through the existing Part 223, and any future rulemaking. one of five notices regarding paymentssupervisory process, including through
By order of the Board of Governors of the system risk that the Board is issuing forregulatory restrictions on interaffiliate
Federal Reserve System, May 30, 2001. public comment today. Three near-termtransactions embodied in sections 23A
Jennifer J. Johnson, proposals concern the net debit cap3and 23B of the Federal Reserve Act.
Secretary of the Board. calculation for U.S. branches andSections 23A and 23B of the Federal
agencies of foreign banks (Docket No. R–[FR Doc. 01–13977 Filed 6–4–01; 8:45 am]Reserve Act are intended to limit the
1108), modifications to the proceduresBILLING CODE 6210–01–Prisks to an insured depository
for posting electronic checkinstitution from transactions with its
presentments to depository institutions’affiliates. In May 2001, the Board
FEDERAL RESERVE SYSTEM Federal Reserve accounts for purposespublished an interim final rule that (1)
of measuring daylight overdrafts (Docketrequires, under section 23A, that
[Docket No. R–1107] No. R–1109), and the book-entryinstitutions establish and maintain
securities transfer limit (Docket No. R–policies and procedures to manage the Policy Statement on Payments System 1110). In addition, the Board iscredit exposure arising from the Risk requesting comment on the benefits andinstitutions’ intraday extensions of
drawbacks to several potential longer-AGENCY: Board of Governors of thecredit to affiliates and (2) clarifies that
term changes to the Board’s paymentsFederal Reserve System.intraday extensions of credit by an
system risk (PSR) policy, includinginsured depository institution to an ACTION: Interim policy statement with
lowering self-assessed net debit caps,affiliate are subject to the market terms request for comment.
eliminating the two-week average caps,requirement of section 23B (Docket No.
SUMMARY: The Board is issuing and implementing a two-tiered pricingR–1104).
requesting comment on an interim system for collateralized andThe Board notes that the interim rule
policy statement that allows a uncollateralized daylight overdrafts, andunder sections 23A and 23B could
depository institution that has a self- rejecting payments with settlement-dayrestrict the ability of depository
assessed net debit cap (average, above finality that would cause an institutioninstitutions to consolidate their daylight
average, or high) to pledge collateral to to exceed its daylight overdraft capacityoverdraft caps. Because of statutory
its Federal Reserve Bank in order to level (Docket No. R–1111). Furthermore,exemptions, however, the market terms
access additional daylight overdraft to reduce burden associated with therequirement of section 23B and the
capacity above its net debit cap level. PSR policy, the Board recentlypolicies and procedures requirement of
The Board may modify the final policy rescinded the interaffiliate transferthe interim rule generally would not
statement after considering theapply to intraday credit extensions (Docket No. R–1106) and third-party
comments received.between affiliated insured depository access policies (Docket No. R–1100).
institutions. Thus, intraday credit DATES: The interim policy statement is The Board requests that in filing
extensions between affiliated depository effective on May 30, 2001. Comments on comments on these proposals,
institutions, including the consolidating the interim policy must be received by commenters prepare separate letters for
transfers discussed above, would August 6, 2001. each proposal, identifying the
generally be permissible under sections appropriate docket number on each.ADDRESSES: Comments, which should
23A and 23B provided they are This will facilitate the Board’s analysisrefer to Docket No. R–1107, may be
conducted in a safe and sound manner. of all comments received.mailed to Ms. Jennifer J. Johnson,
On the other hand, intraday credit Secretary, Board of Governors of the I. Background
extensions designed to transfer the Federal Reserve System, 20th and C
Beginning in 1985, the Board adopteddaylight overdraft cap of an insured Streets, NW., Washington, DC 20551 or
and has subsequently modified a policydepository institution to an affiliate that mailed electronically to
to reduce the risks that paymentsis not an insured depository institution, regs.comments@federalreserve.gov.
systems present to the Federal Reservesuch as a branch or agency of a foreign Comments addressed to Ms. Johnson
Banks, to the banking system, and tobank affiliate, would be subject to the also may be delivered to the Board’s
other sectors of the economy. Anmarket terms requirement of section 23B mailroom between 8:45 a.m. and 5:15
integral component of the current PSRand the policies and procedures p.m. and to the security control room
policy is a program to controlrequirement of the interim rule. outside of those hours. Both the
depository institutions’ use of intradayBecause the risks addressed by the mailroom and the security control room
Federal Reserve credit, commonlyinteraffiliate transfer policy are
referred to as ‘‘daylight credit’’ or4 The current part I, section G of the policy,
3 12 U.S.C. 371c. Monitoring, will be designated as section F. ‘‘daylight overdrafts.’’ The Board’s
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intention was to address the Federal funds overdrafts, have the potential to In March 1995, the Board decided to
Reserve’s risk as well as risks on become overnight overdrafts. Given the raise the daylight overdraft fee to 36
private-sector networks, primarily large- seller-driven nature of the book-entry basis points instead of 48 basis points
dollar payments systems. Risk can arise system and the Board’s sensitivity to the (60 FR 12559, March 7, 1995). Because
from transactions on the Federal markets it supports, the Board aggregate daylight overdrafts fell
Reserve’s wire transfer system determined that only collateralized approximately 40 percent after the
(Fedwire); from other types of book-entry securities overdrafts would introduction of fees, the Board was
2payments, including checks and be exempt from cap limits. This aspect concerned that raising the fee to 48 basis
automated clearing house (ACH) of the policy was designed to protect the points could produce undesirable
transactions; and from transactions on Reserve Banks from the very large market effects contrary to the objectives
private large-dollar networks. exposures that can result from book- of the risk-control program. The Board
entry transfers without creating seriousThe Federal Reserve Banks face direct believed, however, that an increase in
disruptions in the market.risk of loss should depository the overdraft fee was needed to provide
In 1989, the Board requestedinstitutions be unable to settle their additional incentives for institutions to
comment on a proposed change to itsdaylight overdrafts in their Federal reduce overdrafts related to funds
payments system risk reductionReserve accounts before the end of the transfers. The Board stated it would
program that would assess a fee of 60day. Moreover, systemic risk may occur evaluate further fee increases two years
5basis points, phased in over three years,if an institution participating on a after the 1995 fee increase.
for average daily overdrafts in excess of In considering its obligation toprivate large-dollar payments network
a deductible of 10 percent of risk-based evaluate further fee increases, the Boardwere unable or unwilling to settle its net
capital (54 FR 26094, June 21, 1989). In recognized that significant changes havedebit position. If such a settlement
October 1992, the Board approved occurred in the banking, payments, andfailure occurred, the institution’s
charging a fee for daylight overdrafts, regulatory environment in the past fewcreditors on that network might also be
which was to be phased in as 24 basis years and, as a result, decided tounable to settle their commitments.
points in 1994, 48 basis points in 1995, conduct a broad review of the FederalSerious repercussions could, as a result,
and 60 basis points in 1996 (57 FR Reserve’s daylight credit policies.spread to other participants in the
347084, October 14, 1992). The purpose During the course of its review, theprivate network, to other depository
of the fee was to induce behavior that Board evaluated the effectiveness of theinstitutions not participating in the
would reduce risk and increase current daylight credit policies andnetwork, and to the nonfinancial
efficiency in the payments system. determined that these policies appear toeconomy generally. A Reserve Bank
Some depository institutions and be generally effective in controlling riskcould be exposed to indirect risk if
securities dealers commented that they to the Federal Reserve and creatingFederal Reserve policies did not address
opposed a fee on book-entry securities incentives for depository institutions tothis systemic risk.
overdrafts that were collateralized.The 1985 policy required all manage their intraday credit exposures.
These depository institutions anddepository institutions incurring In addition, the Board determined that
securities dealers argued that pricingdaylight overdrafts in their Federal the current policy is well understood by
book-entry securities overdrafts wasReserve accounts as a result of Fedwire the industry and that private-sector
inequitable because collateral protectedfunds transfers to establish a maximum participants generally have benefited
the Federal Reserve against losses andlimit, or net debit cap, on those from the policy’s risk controls. The
there are already costs associated withoverdrafts (50 FR 21120, May 22, Board also recognizes, however, that the
1 pledging collateral. For that reason,1985). Initially, the Board exempted policy has imposed costs on the
these institutions and securities dealersbook-entry securities overdrafts from industry and is considered burdensome
argued that pricing and requiringquantitative overdraft controls because by some depository institutions.
collateral for book-entry securities In conducting its review, the Boardof concerns about the effect that
overdrafts was unduly burdensome. The evaluated the impact of past policyoverdraft restrictions could have on the
Board stated, however, that allowing actions on depository institutions’U.S. government securities market and
collateral to substitute for daylight behavior and on the markets generally.on the Federal Reserve’s ability to
overdraft fees would not provide a The Board also took into considerationconduct monetary policy through open
meaningful incentive for depository the effect of various payment systemmarket operations. In 1990, however,
institutions or their dealer customers to initiatives on payments activity and thethe Board announced that a depository
change their procedures and reduce demand for daylight credit. While theinstitution’s funds and book-entry
4daylight overdrafts. Board believes that the current policy issecurities overdrafts would be combined
generally effective, it did identifyfor purposes of determining the
2 The policy requires that depository institutions growing liquidity pressures amonginstitution’s compliance with its cap (55
with ‘‘frequent and material’’ book-entry securities certain payment system participants.FR 22087, May 31, 1990). overdrafts fully collateralize these overdrafts. Book-
Specifically, the Board learned that aThe Board recognized that receivers of entry daylight overdrafts become frequent and
material when an account holder exceeds its netbook-entry securities generally cannot
debit cap, because of book-entry securities that permits clearing banks and similarly situatedcontrol the timing of their book-entry
transactions, on more than three days in any two institutions to exceed their caps because of thesecurities overdrafts, but that intraday consecutive reserve maintenance periods and by difficulty of controlling book-entry securities
book-entry securities overdrafts, like more than 10 percent of its capacity. overdrafts.
3 To facilitate the pricing of daylight overdrafts, 5 On an average annual basis since 1995,
1 the Federal Reserve also adopted a modifiedNet debit caps are calculated by applying a cap overdrafts caused by book-entry securities transfers
method of measuring daylight overdrafts that moremultiple from one of six cap classes (zero, exempt, have decreased almost 10 percent per year and the
closely reflects the timing of actual transactionsde minimis, average, above average, and high) to a value of book-entry securities transfers has grown
affecting an institution’s intraday Federal Reservecapital measure. Cap multiples are determined more than 5 percent per year; whereas funds
account balance. This measurement methodthrough either a self-assessment process (for overdrafts and the value of Fedwire funds transfers
incorporates specific account posting times foraverage, above average, and high cap classes) or a have grown between 15 and 18 percent per year.
different types of transactions.board-of-directors resolution or assigned by the The growth in funds overdrafts appears to be
4Reserve Bank. Requests for a particular cap multiple The Board also stated that collateral is required directly related to the growth in large-value funds
are granted at the discretion of the Reserve Bank. for large book-entry overdrafters as an exception transfers.
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