Federal Reserve Policy on Payment System Risk; Procedures for Measuring Daylight Overdrafts, 72112-72120 [2014-28664]
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Federal Register / Vol. 79, No. 234 / Friday, December 5, 2014 / Rules and Regulations
time as provided in the Reserve Bank’s
operating circular, or return the item by
midnight of the day it receives the item.
If the paying bank fails to settle for or
return a cash item in accordance with
this paragraph (b)(4)(i)(B), it shall be
subject to any applicable overdraft
charges. Settlement under this
paragraph (b)(4)(i)(B) satisfies the
settlement requirements of paragraph
(b)(4)(i)(A) of this section.
(ii) [Reserved]
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By order of the Board of Governors of the
Federal Reserve System, December 1, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014–28516 Filed 12–4–14; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL RESERVE SYSTEM
12 CFR Part 210
[Docket No. OP–1472]
Federal Reserve Policy on Payment
System Risk; Procedures for
Measuring Daylight Overdrafts
Board of Governors of the
Federal Reserve System.
ACTION: Policy statement.
AGENCY:
The Board of Governors of the
Federal Reserve System (Board) has
adopted revisions to part II of the
Federal Reserve Policy on Payment
System Risk (PSR policy) related to the
procedures for measuring balances
intraday in institutions’ accounts at the
Federal Reserve Banks (Reserve Banks).
The changes relate to the Board’s
procedures for posting debit and credit
entries to institutions’ Federal Reserve
accounts for automated clearinghouse
(ACH) debit transactions and
commercial check transactions.
Elsewhere in the Federal Register under
Docket No. R–1473, the Board has
adopted related changes to the Board’s
Regulation J that affect when paying
banks settle for check transactions
presented to them by the Reserve Banks.
Additionally, in this document, the
Board has adopted a set of principles for
establishing future posting procedures
for the Reserve Banks’ same-day ACH
service. The Board has also adopted a
change in language of the PSR policy
intended to clarify the Reserve Banks’
administration of the policy for U.S.
branches and agencies of foreign
banking organizations. Finally, the
Board has adopted two technical
revisions to the posting procedures to
reflect deposit deadlines already in
effect for Treasury checks, postal money
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SUMMARY:
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orders, local Federal Reserve Bank
checks, and savings bond redemptions
in separately sorted deposits.
DATES: Effective Dates: The policy
changes related to the set of principles
for establishing future posting
procedures for the Reserve Banks’ sameday ACH service, the Reserve Banks’
administration of the policy for U.S.
branches and agencies of foreign
banking organizations, and the technical
revisions to the posting procedures for
Treasury checks, postal money orders,
local Federal Reserve Bank checks, and
savings bond redemptions will take
effect on December 5, 2014. The policy
changes to the Board’s procedures for
posting debit and credit entries to
institutions’ Federal Reserve accounts
for ACH debit and commercial check
transactions will take effect on July 23,
2015. All items scheduled to settle on
this date and after will post according
to the new posting rule procedures for
these transactions, regardless of date of
deposit.
FOR FURTHER INFORMATION CONTACT:
Susan V. Foley, Senior Associate
Director (202/452–3596), Jeffrey D.
Walker, Assistant Director (202/721–
4559), or Michelle D. Olivier, Senior
Financial Services Analyst (202/452–
2404), Division of Reserve Bank
Operations and Payment Systems, Board
of Governors of the Federal Reserve
System; for users of
Telecommunications Device for the Deaf
(TDD) only, contact 202/263–4869.
SUPPLEMENTARY INFORMATION:
I. Background
On December 10, 2013, the Board
requested comment on several changes
to part II of the PSR policy intended to
enhance the efficiency of the payment
system.1 Technology and processing
improvements have enabled payment
systems and depository institutions to
achieve significant efficiencies since the
Board first established the procedures,
referred to as posting rules, to measure
depository institutions’ intraday Federal
Reserve account balances. The proposed
changes to these posting rules are
intended to align them with current
operations and processing times and to
strategically position the rules for future
advancements in the speed of clearing
and settlement.
Commercial and Government ACH
Debit Transactions
The Board proposed moving the
posting times for commercial and
government ACH debit transactions
1 78 FR 74130 (Dec. 10, 2013). The Board’s PSR
policy is available at www.federalreserve.gov/
paymentsystems/psr_policy.htm.
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processed overnight to 8:30 a.m. from
11:00 a.m. eastern time (ET) to coincide
with the posting time for ACH credit
transactions processed overnight.2
Under the proposal, other types of ACH
transactions, including same-day ACH
and certain ACH return items, would
not be affected and would continue to
post at 5:00 p.m.
The Board outlined four potential
benefits to shifting earlier the posting
for ACH debit transactions. First,
posting ACH debit transactions
according to the proposed posting rules
would simplify account management by
allowing institutions to fund the net of
all ACH activity at a single posting time,
rather than funding debit and credit
transactions separately. Second, the
change would increase liquidity early in
the day both for institutions that
originate ACH debit transactions over
the FedACH network and for those
institutions that originate ACH debit
transactions over the Electronic
Payments Network (EPN), the other
ACH operator, but have transactions
delivered to receiving institutions over
the FedACH network (interoperator
transactions).3 Third, moving the
posting time for ACH debit transactions
to 8:30 a.m. would align the Reserve
Banks’ FedACH settlement times with
those of EPN. The Board believes that
this change would remove any potential
competitive disparities between the two
ACH operators and their participants
arising from the different settlement
times for ACH debit transactions.
Fourth, the earlier posting of ACH debit
transactions would increase the
efficiency of the ACH network by
aligning better the settlement of ACH
debit transactions with their processing.
Additionally, posting ACH debit
transfers at 8:30 a.m. would better
conform to the Board’s principles for
measuring daylight overdrafts,
specifically the principle that
encourages posting times to be as close
as possible to the delivery of payments
to the receiving institution.4
2 All times are eastern time unless otherwise
specified.
In 2008, the Board requested comment on moving
the posting time of ACH debit transactions from
11:00 a.m. to 8:30 a.m. to coincide with the posting
of ACH credit transactions but decided not to
pursue the change because of economic conditions
at the time and the additional costs and liquidity
pressures that could be placed on some institutions.
The request for comment and the subsequent notice
of the Board’s decision not to pursue the proposed
changes can be found, respectively, at 73 FR 12443
(Mar. 7, 2008) and 73 FR 79127 (Dec. 24, 2008).
3 Liquidity refers to balances in Federal Reserve
accounts to make payments. An increase in
liquidity involves higher account balances, which
could result in fewer daylight overdrafts.
4 The Board’s four principles for measuring
daylight overdrafts are as follows: (1) The
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Commercial Check Transactions
The Board proposed several revisions
to its posting rules for commercial check
transactions to reflect today’s nearly 100
percent electronic check-processing
environment. Specifically, the Board
proposed to post commercial check
transactions, both credits and debits, at
8:30 a.m., 1:00 p.m., and 5:30 p.m., with
the specific posting time depending on
when a check is deposited with the
Reserve Banks (for credit) or presented
by the Reserve Banks (for debit).5
Credits associated with any commercial
checks received by the Reserve Banks’
deposit deadlines would post on a
rolling basis at the next available
posting time at least 30 minutes after
receipt by the Reserve Banks.6
Similarly, debits associated with
electronic check transactions would
post on a rolling basis at the next
available posting time that is at least 30
minutes after presentment to the paying
bank. To accommodate the extra time
required to make paper presentments,
debits for the few remaining paper
commercial check transactions, which
account for less than one-tenth of 1
percent of checks processed by the
Reserve Banks, would post at the final
measurement procedures should not provide
intraday float to participants. (2) The measurement
procedures should reflect the times at which payor
institutions are obligated to pay for transactions. (3)
The users of payment services should be able to
control their use of intraday credit. (4) The Reserve
Banks should not obtain any competitive advantage
from the measurement procedures. The Board
developed the principles in the early 1990s; for the
latest version, refer to 73 FR 12443 (Mar. 7, 2008).
5 Under the current posting rules, commercial
check credits post according to one of two options:
(1) All credits post at a single, float-weighted
posting time, or (2) fractional credits post between
the hours of 11:00 a.m. and 6:00 p.m., depending
on the institution’s preference. The second option
lets the institution receive portions of its available
check credits on the clock hours between 11:00 a.m.
and 6:00 p.m. The option selected applies to all
check deposits posted to an institution’s account.
Both crediting options are based on surveys of
check presentment times and vary across time
zones. Commercial check debits are posted on the
next clock hour at least one hour after presentment
beginning at 11:00 a.m. for paper checks and 1:00
p.m. local time for electronic checks, and ending at
3:00 p.m. local time.
6 Immediate credit would not be passed for
deferred-availability deposit products. Customer
availability for files deposited for these services
would be the same as if the file were received at
a deposit deadline before 8:00 a.m. the next
business day.
Currently, the Reserve Banks’ electronic check
deposit deadlines are 9:00 p.m. on the previous
business day, and 1:00 a.m., 5:00 a.m., and 10:00
a.m. on the settlement day. The paper check deposit
deadline is 7:00 p.m. on the previous business day.
As a result, depositing banks could expect credit for
all electronic items deposited for the 9:00 p.m., 1:00
a.m., and 5:00 a.m. deposit deadlines to post at 8:30
a.m., and credit for electronic items deposited for
the 10:00 a.m. deadline to post at 1:00 p.m. Paper
items deposited by 7:00 p.m. on the previous day
would post at 8:30 a.m.
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posting time of 5:30 p.m. on the day the
paper check is presented to the paying
bank.7
Under the current posting rules and
Regulation J, at least one hour must
elapse between presentment and posting
to allow limited verification of cash
letters. The Board proposed reducing
this requirement from one hour to 30
minutes. As a result of the widespread
use of electronic check-handling
methods and the extremely small value
of paper presentments, the Board
believes 30 minutes is now sufficient for
institutions to verify cash letters.8
Additionally, as part of the proposed
posting rules, the Reserve Banks would
present multiple electronic cash letters
per day to institutions that receive
electronic presentments, with the first
presentment by 8:00 a.m. for settlement
at 8:30 a.m.9
The Board also proposed to revise the
posting rules for large-value check
corrections and adjustments amounting
to $1 million or more.10 In alignment
with the proposed posting times for
commercial check transactions, the
Board proposed to move the settlement
of large-value credit corrections and
adjustments to begin at 8:30 a.m. and
hourly thereafter on the half-hour
depending on when the discrepancy is
detected.11 Additionally, the Board
7 The posting of debits associated with electronic
presentments earlier than the debits associated with
paper check presentments may contribute
marginally to a given paying bank’s incentive to
require that checks be presented to it in paper form.
Electronic check presentment is now pervasive,
however, and the Board does not believe that a
paying bank that receives presentments
electronically would be swayed by the later posting
time to return to paper presentment.
Credits for checks presented in paper form would
not be delayed to accommodate the extra time
required for presentment and would post at the next
available posting time at least 30 minutes after
receipt by the Reserve Banks. The Reserve Banks
will monitor the value of commercial checks
presented in paper form, and should it increase
materially, the Board may propose changes to the
posting rules to reduce float.
8 The Board issued a companion document
requesting comment on proposed changes to
Regulation J, under which a paying bank would be
required to settle for an item by as early as 8:30 a.m.
and as soon as one half-hour after it receives the
item from the Reserve Banks. The request for
comment can be found at 78 FR 74041 (Dec. 10,
2013). Elsewhere in the Federal Register under
Docket No. R–1473, the Board adopted these
changes to Regulation J.
9 The timing and frequency of presentments is
subject to change by the Reserve Banks to align
better with processing advancements and product
type.
10 Corrections are account entries made to correct
discrepancies detected by a Reserve Bank during
the initial processing of checks. Adjustments are
account entries made to correct discrepancies
detected by an institution after entries have posted
to Federal Reserve accounts.
11 Currently, credit corrections and adjustments
amounting to $1 million or more post at 11:00 a.m.
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proposed to post large-value debit
corrections after the close of the
Fedwire Funds Service, the same time
as large-value debit adjustments are
posted.12
The Board outlined four potential
benefits from the proposed changes to
its commercial check posting rules.
First, the proposed posting rules would
give earlier availability for items
deposited with the Reserve Banks based
on an institution’s deposit behavior and
would provide earlier availability for
credit adjustments and corrections.
Second, these changes would simplify
the posting rule structure and, as a
result, reduce the administrative burden
on institutions and Reserve Banks.
Third, the proposed rules would reduce
the amount of intraday float currently
provided by the Reserve Banks as a
result of posting rules that do not
adequately reflect current operations.13
Fourth, the proposals would align the
posting rules with the significant shift
over the past decade from paper to
electronic check clearing. The proposed
commercial check posting rules would
conform better to the Board’s principles
for measuring daylight overdrafts,
specifically the principles that
discourage providing intraday float and
encourage posting times to be as close
as possible to the delivery of payments
to the receiving institution.
As part of its posting rule proposals,
the Board assessed the effect of the ACH
debit and commercial check transaction
posting rule changes on institutions’
account balances and daylight overdraft
fees both separately and combined. The
Board recognized that the combined
effect of the changes would, on average,
reduce institutions’ Federal Reserve
account balances at 8:30 a.m. for the
majority of master accounts that settle
ACH and commercial check activity (94
percent of approximately 3,500 master
accounts) based on second-quarter 2013
payment data.14 Less than 1 percent of
and hourly thereafter, coinciding with the current
posting rules for commercial checks.
12 Currently, debit corrections amounting to $1
million or more post at 11:00 a.m. and hourly
thereafter.
13 Under the current posting rules, check credits
and paper check debits begin posting at 11:00 a.m.,
whereas electronic check debits begin posting at
1:00 p.m. local time. As a result, the current
measurement procedures provide intraday float,
which has increased over time as electronic
deposits and presentments have expanded.
14 Although most institutions that maintain
master accounts are involved in both ACH and
commercial check activity, approximately half of
these institutions settle their activity through a
correspondent rather than their own master
account.
In connection with the 2013 proposal, analysis
reflects activity at the master account level from the
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these institutions, only 33 institutions,
would incur overdraft fees in any of the
six two-week reserve maintenance
periods within the quarter analyzed.
The low incidence of fees can be
attributed to the current levels of
pledged collateral and collateralized
daylight overdrafts receiving a zero fee,
the $150 fee waiver covering modest
amounts of uncollateralized overdrafts,
and the high balances held in Federal
Reserve accounts. Twenty-eight of the
33 institutions are eligible to incur
daylight overdrafts and could avoid
paying higher fees by pledging
(additional) collateral, holding higher
balances and receiving interest on their
Federal Reserve balances, or arranging
early-morning funding. The remaining 5
institutions are ineligible to receive
intraday credit and would need to
increase funding in their accounts either
by holding higher balances (and in some
cases potentially receiving interest on
their Federal Reserve balances) or by
arranging early-morning funding.15
For both the ACH debit and
commercial check posting rule
proposals, the Board proposed an
effective date of no less than six months
from the publication of the revised PSR
policy to give institutions sufficient
time to make any necessary changes.
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Principles for Future Posting Rules for
the Reserve Banks’ Same-Day ACH
Service
Given the Board’s expectations that
the Reserve Banks’ same-day ACH
service will evolve, with the potential
establishment of additional processing
cycles that require new posting times for
settlement, the Board proposed
establishing a set of principles that
would be applied to any new same-day
ACH posting rules.16 Under the
proposal, the Board would generally
request public comment on changes to
the posting rules only when the changes
deviate from the principles. Such
principles would apply to the Reserve
second quarter 2013 and is intended to be
illustrative only. All institutions should consider
their own historical payment activity when
evaluating the effect of the posting rule changes.
The average balance calculation only includes
days in the second quarter of 2013 for which
institutions had ACH debit or commercial check
payment activity. The simulation of balances
focused only on balances held at 8:30 a.m., while
the analysis of fees and collateral took into account
balances held and collateral pledged over the entire
21.5-hour Fedwire operating day.
15 These institutions include bankers’ banks and
Federal Home Loan Banks, and not all would be
eligible to earn interest on their Federal Reserve
balances.
16 The current processing schedule has a 2:00
p.m. deadline for submitting same-day, forward
ACH transactions for settlement at 5:00 p.m. Return
same-day ACH transactions post at 5:30 p.m.
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Banks’ voluntary (opt-in) same-day ACH
service and to any future same-day ACH
service, such as a universal same-day
ACH service covering all participants in
the ACH network.17 These principles,
which would apply in addition to the
current four posting-rules principles,
were proposed as follows:18
(1) For each same-day ACH
transmission deadline, the Reserve
Banks will establish expected
distribution times for the same-day ACH
files.
a. The Reserve Banks will post
settlement for same-day ACH debit
transactions no earlier than 15 minutes
after the Reserve Banks’ expected
distribution times for the associated
same-day ACH file.
b. The Reserve Banks will post
settlement for ACH credit and debit
transactions associated with a particular
same-day ACH file distribution time at
the same time.
(2) The Reserve Banks will not post
settlement for same-day ACH
transactions between 6:30 p.m. and 8:30
a.m. on the next processing day.
(3) The Reserve Banks will post
settlement for same-day ACH
transactions exchanged with another
operator to support universal same-day
ACH during the operating hours for the
Reserve Banks’ National Settlement
Service (NSS).19
The Board proposed that the
principles for future posting rules for
the Reserve Banks’ same-day ACH
service would be effective on final
approval.
Language Clarification in Section II.G.3
The Board proposed a language
clarification to part II of the PSR policy
17 In 2011, NACHA, a not-for-profit association
that manages the development, administration, and
governance of the ACH network for participating
depository institutions, proposed amendments to its
operating rules to enable ACH debit and credit
transfers to be cleared and settled on the same day
that they are originated. The expedited service
would require the participation of all receiving
institutions in the ACH network, going beyond the
Reserve Banks’ voluntary service. Although the
majority of NACHA’s voting members were in favor
of the proposal, NACHA did not receive the 75
percent positive votes required for passage. NACHA
is currently evaluating modifications to its earlier
proposal to address concerns expressed regarding it.
18 These four posting-rule principles are outlined
in a footnote earlier in this document.
19 NSS is a multilateral settlement service owned
and operated by the Reserve Banks. The service is
offered to institutions that settle for participants in
clearinghouses, financial exchanges, and other
clearing and settlement groups. Settlement agents,
acting on behalf of those institutions in a settlement
arrangement, electronically submit settlement files
to the Reserve Banks. Files are processed upon
receipt, and entries are automatically posted to the
institutions’ Federal Reserve accounts. The NSS file
submission window is currently 8:30 a.m. to 5:00
p.m.
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to explain more clearly the Reserve
Banks’ administration of the PSR policy
as it relates to U.S. branches and
agencies of foreign banking
organizations (FBOs). The proposed
language would clarify that U.S.
branches and agencies of the same
foreign bank (also referred to as an FBO
family) are expected to manage their
accounts so that the daylight overdraft
position in each account does not
exceed the capacity allocated to that
account from the FBO family’s net debit
cap.20 In the past, the Reserve Banks
monitored the master accounts of FBO
families on a consolidated basis rather
than requiring an FBO family to allocate
its net debit cap if it wanted to incur
daylight overdrafts in more than one
account across the Federal Reserve.
The Board proposed that the language
change clarifying the Reserve Banks’
administration of the policy for U.S.
branches and agencies of FBOs would
be effective on final approval.
III. Summary of Public Comments and
Analysis
The Board received thirteen comment
letters in response to its PSR policy
proposals.21 Comments were submitted
by seven depository institution trade
organizations, one private-sector
clearing and settlement system, one
commercial banking organization, one
bankers’ bank, one governmentsponsored enterprise, and two
individuals. Most commenters
expressed support for the posting-rule
proposals’ intent to improve the speed
and efficiency of the payment system
but also raised specific concerns. The
Board considered these comments in
finalizing its changes to the PSR policy,
as discussed in more detail below.
Effect on Credit Unions and Small
Institutions
Five commenters, including four
depository institution trade
organizations and a bankers’ bank,
expressed concerns regarding the effect
of the ACH debit and commercial check
posting rule proposals on credit unions
and small institutions.22 The
20 The previous language in the PSR policy that
related to the administration of multiple master
accounts was somewhat ambiguous and could have
been interpreted to allow the Federal Reserve to
administer these accounts as is the current practice
(separate administration for the multiple master
accounts) or the previous practice (consolidated
administration).
21 The comment letters are available at http://
www.federalreserve.gov/apps/foia/
proposedregs.aspx.
22 Commenters were the Credit Union National
Association, Georgia Credit Union League, Missouri
Credit Union Association, National Association of
Federal Credit Unions, and Midwest Independent
Bank.
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commenters were supportive of the
proposals’ intent but believed that credit
unions and smaller institutions might be
disproportionately affected and the
proposals could lead to more-frequent
and larger daylight overdrafts and
associated fees. Given the concerns
raised by commenters related to these
types of institutions, the Board
performed additional analysis on the
effect of the combined ACH debit and
commercial check proposals on these
institutions based on second-quarter
2013 payment data, consistent with the
2013 proposal. Of the approximately
3,500 master accounts maintained by
institutions that settle ACH and
commercial check activity, almost 800
(22 percent) are maintained by natural
person credit unions. The combined
posting rule proposals would, on
average, reduce account balances held
in Federal Reserve accounts at 8:30 a.m.
for 94 percent of these institutions. Out
of those credit unions that would
experience lower balances, only 1 credit
union would incur higher daylight
overdraft fees as a result of the
proposals, and this credit union was
already incurring fees under the current
posting rules. The average increase in
fees over the quarter under the proposed
posting rules would be $132 per reserve
maintenance period.23 To avoid fee
increases, this credit union could pledge
on average $7 million of additional
collateral.24
Excluding natural person credit
unions, an additional 2,500 master
accounts of the approximately 3,500
master accounts maintained by
institutions that settle ACH and
commercial check activity are
maintained by institutions with assets of
less than $10 billion. The combined
posting rule proposals would reduce, on
average, account balances held in
Federal Reserve accounts at 8:30 a.m.
for 95 percent of these institutions. Out
of those small institutions that would
experience lower balances,
approximately 1 percent, only 25
institutions, would incur higher fees as
a result of the proposals. More than onethird of the 25 institutions were already
incurring fees under the current posting
rules, and the average increase in fees
over the quarter under the proposed
posting rules would be $66 per reserve
maintenance period. To avoid fee
increases, these 25 institutions could
pledge on average $10 million of
(additional) collateral.
23 The average calculation includes all reserve
maintenance periods in the quarter.
24 The average calculation only includes reserve
maintenance periods for which the credit union
required (additional) collateral.
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The Board recognizes that many
institutions are holding higher balances
in their Federal Reserve accounts today,
and although second-quarter 2013
payment data indicate that only a very
limited number of credit unions and
institutions with assets less than $10
billion would incur higher fees under
the proposal, over time, more of these
institutions may need to alter their
account management in response to the
posting rule changes. Nevertheless, the
Board believes that institutions have the
tools to mitigate any adverse impact. For
each two-week reserve maintenance
period, institutions receive a $150 fee
waiver, which is intended to reduce the
burden on institutions that incur a small
amount of uncollateralized daylight
overdrafts. Many institutions have
considerable room for additional
daylight overdrafts under the waiver. In
addition, institutions could post
(additional) collateral, hold higher
balances overnight, or arrange early
morning funding. Interest on balances in
Federal Reserve accounts would help
compensate those institutions that hold
higher balances overnight in their
Federal Reserve accounts.
Effect on Institutions Ineligible for
Access to Intraday Credit
One commenter, representing the
interests of five Federal Home Loan
Banks without regular access to the
discount window and thus without
access to intraday credit under the PSR
policy because of their classification as
government-sponsored enterprises,
expressed concern that the proposed
posting rule for ACH debit transactions
would be excessively burdensome for
institutions ineligible for access to
intraday credit.25 The commenter
believed that, in addition to account
management changes necessary to avoid
incurring daylight overdrafts, such as
holding higher balances overnight or
finding alternative liquidity sources, the
proposal might require these
institutions to reduce their incomegenerating investments of overnight
funds. The commenter also believed
that, if adopted, the new posting rule for
ACH debit transactions might cause
institutions ineligible for access to
intraday credit to re-evaluate the
provision of ACH services to their
25 Edge and agreement corporations, bankers’
banks that have not waived their exemption from
reserve requirements, limited-purpose trust
companies, government-sponsored enterprises
including Federal Home Loan Banks (FHLBs), and
international organizations do not have regular
access to the discount window and are not
permitted to incur daylight overdrafts in their
Federal Reserve accounts. Voluntary
collateralization of daylight overdrafts and the $150
fee waiver are not available to these institutions.
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72115
customers and the fees associated with
ACH services. The Board acknowledges
that institutions ineligible for access to
intraday credit may face additional
challenges as a result of the proposed
posting rule for ACH debit transactions.
Of the 26 institutions ineligible to incur
daylight overdrafts that participate in
FedACH, 22 on average would
experience lower balances at 8:30 a.m.
under the proposed posting rule for
ACH debit transactions. Only 4 of these
22 institutions, however, would incur
daylight overdrafts according to the
Board’s analysis of second-quarter 2013
payment data. The average maximum
overdrafts incurred by these 4
institutions over the quarter analyzed
ranged from just under $100,000 to
slightly below $100 million, with an
average of $33 million across the 4
institutions. These institutions would
need to arrange early-morning funding
or hold higher balances overnight based
on expected settlement of ACH
activity.26 The Board understands that
there may be costs associated with these
actions, and institutions would need to
weigh the costs and benefits of their
account-management options. In
addition, the Board acknowledges that
some institutions that would experience
lower balances might also need to
manage their Federal Reserve accounts
more closely to avoid daylight
overdrafts under the proposed posting
rule for ACH debit transactions.
A limited number of institutions that
are ineligible for access to intraday
credit may need to manage their Federal
Reserve accounts to avoid daylight
overdrafts as a result of the earlier
posting time for ACH debit transfers.
The Board believes that these
institutions can reasonably manage their
Federal Reserve accounts for activity
settling at 8:30 a.m. given the
availability of Fedwire Funds beginning
at 9:00 p.m. the previous calendar day.
The Board believes that the associated
burden of closer account management
by a small number of institutions is
outweighed by the benefits of the earlier
posting time discussed earlier,
including the long-run efficiency of the
payment system.
Competitive Disparity Between Reserve
Bank and Private-Sector Services
In response to the Board’s ACH debit
and commercial check posting rule
proposals, The Clearing House (TCH),
which owns EPN, was supportive of the
Board’s intent to align and modernize
the posting rules but expressed several
26 Only one of the four institutions is eligible to
earn interest on its Federal Reserve account
balance.
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short-term and long-term competitive
disparity concerns. Specifically, TCH
was concerned that the posting rules
might give the Reserve Banks an unfair
advantage over private-sector clearing
and settlement systems as a result of
underlying legal differences and the
limited settlement hours of NSS. TCH
also stated that in the long run, the
Board should ensure that all processes
related to the posting and settlement of
Reserve Bank priced services do not
provide an advantage to Reserve Bank
priced services over those of other
clearing and settlement systems. TCH
stated that, in the short-term, the
posting rules should avoid disrupting
the settlement of clearing and settlement
systems, specifically EPN’s 8:30 a.m.
settlement of ACH transactions over
NSS. Two additional commenters, U.S.
Bank and NACHA, endorsed and
emphasized the importance of
addressing TCH’s concerns related to
the proposed posting rules for ACH
debit and commercial check
transactions.
Reserve Bank priced services settle
transactions in participants’ Federal
Reserve accounts through direct entries
to the Federal Reserve’s accounting
system whereas private-sector clearing
and settlement systems typically use
Fedwire Funds, ACH, or NSS to settle
transactions in participants’ Federal
Reserve accounts. The Board has
traditionally encouraged the use of NSS
for multilateral settlement arrangements
to mitigate counterparty credit risk. The
establishment of posting rules outside of
the NSS operating day could potentially
create competitive disparities between
Reserve Bank and private-sector clearing
and settlement systems. The posting
rules proposed for ACH debit and
commercial check transactions occur
within the NSS file submission window,
with the exception of the final posting
time for commercial check transactions
at 5:30 p.m. and the posting of a limited
number of check debit and small-dollar
credit corrections and adjustments after
the close of Fedwire. The Reserve Banks
will extend the NSS file submission
window until 5:30 p.m. beginning in
January 2015. In regard to the posting of
debit corrections and adjustments after
the close of Fedwire Funds, such late
posting ensures that an institution could
not receive a debit correction or
adjustment before the associated
transaction posted. Given the minimal
occurrence of large-value check
corrections and adjustments and the low
value of other check corrections and
adjustments, the Board does not believe
posting these transactions after the close
of Fedwire creates a significant
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competitive disparity between Reserve
Bank and private-sector service
providers.27
Additionally, TCH was concerned
that the Reserve Banks’ priced services
personnel could view participants’
Federal Reserve account balances,
daylight overdraft capacity, and
placement on the real-time monitor and
use that information to restrict
transactions or payment services as a
means of managing potential settlement
failures.28 Although the Reserve Banks’
priced services personnel may have the
ability to view account balances in the
normal course of business operations,
they do not have access to daylight
overdraft capacity or risk control
information. The Reserve Banks, like
other clearing and settlement systems,
use a range of risk-management tools
that may include requiring minimum
balances and collateral to manage the
inherent risk of providing services, but
Reserve Bank priced services personnel
do not influence the application of these
controls to be able to affect the outcome
of settlement and do not have the ability
to apply such controls.29
27 In addition to debit corrections and
adjustments, small-dollar credit corrections and
adjustments also post after the close of the Fedwire
Funds Service.
28 For the limited number of institutions that may
expose the Federal Reserve and other payment
system participants to risk of loss, the Reserve
Banks have implemented tools, including the
Account Balance Monitoring System (ABMS),
which can monitor institutions’ payment activity in
real time. ABMS verifies that institutions have
sufficient balances to fund their Fedwire Funds,
NSS, and certain ACH credit transactions as these
payment files are submitted and processed. ABMS
may reject these transactions if there are insufficient
funds to cover the associated payments, regardless
of whether the payment files are processed by the
Reserve Banks or submitted by private-sector
clearing and settlement systems through NSS.
Institutions that are monitored in real time must
fund the total amount of their commercial ACH
credit originations in order for the transactions to
be processed. If the Federal Reserve receives
commercial ACH credit transactions from
institutions monitored in real time after the
scheduled close of the Fedwire Funds Service,
these transactions are currently processed at 12:30
a.m. the next business day, or by the ACH deposit
deadline, whichever is earlier. ABMS provides
intraday account information to the Reserve Banks
and institutions and is used primarily to give
authorized Reserve Bank personnel a mechanism to
control and monitor account activity for selected
institutions. For more information on ACH
transaction processing, refer to the ‘‘ACH
Settlement Day Finality Guide’’ available through
the Federal Reserve Financial Services Web site at
http://www.frbservices.org.
29 The Federal Reserve’s ‘‘Standards Related to
Priced-Service Activities of the Federal Reserve
Banks’’ states that ‘‘No Reserve Bank personnel
with responsibility for priced services, unless acting
in the capacity of president or first vice president,
will also be responsible for monetary policy, bank
supervision, or lending areas. Priced-service
personnel will not make policy decisions affecting
monetary policy, bank supervision, or lending
PO 00000
Frm 00010
Fmt 4700
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TCH encouraged the Board to ensure
that, in the long run, all processes
related to the posting and settlement for
Reserve Bank priced services more
broadly do not provide an advantage to
the Reserve Banks over the privatesector clearing and settlement systems
as a result of legal or settlement
differences between providers. In the
normal course, the Board will continue
to assess Reserve Bank priced service
proposals for new products, pricing, or
posting rules to determine if any
competitive advantage is derived from
legal differences. In the case of
settlement, the Board believes that
potential competitive disparities can be
addressed by expanding NSS operating
hours to encompass more of the Fedwire
Funds day. Private-sector clearing and
settlement systems would then
generally have the ability if needed to
settle transactions in participants’
Federal Reserve accounts over similar
hours as Reserve Bank priced services.30
In the short run, TCH also requested
that the Board delay the posting of ACH
debit transactions until after 8:30 a.m. to
avoid potentially disrupting EPN’s 8:30
a.m. settlement over NSS.31 TCH
believed that posting FedACH debit
transactions at 8:30 a.m. could lower
EPN participants’ Federal Reserve
account balances and increase the
likelihood that a participant would have
insufficient funds to settle its activity
over EPN. The Board believes there are
several factors that minimize the
likelihood of such an outcome. The
posting of ACH debit and credit
transactions simultaneously at 8:30 a.m.
may result in an increase in balances
held by institutions that are large
originators of ACH debit transactions;
many of the largest ACH debit
originators are EPN customers. The
posting-rule change benefits not only
FedACH participants that originate
debit transactions but also EPN
matters.’’ http://www.federalreserve.gov/
paymentsystems/pfs_standards.htm.
30 Commercial check debit and small-dollar credit
corrections and adjustments post after the close of
Fedwire. Given the minimal occurrence of largevalue check corrections and adjustments and the
low value of other check corrections and
adjustments, the Board does not believe posting
these transactions after the close of Fedwire
provides a competitive advantage to the Reserve
Bank priced services.
31 TCH also requested a clarification on how
FedACH debit and credit transactions would post
simultaneously at 8:30 a.m. Under the proposed
posting rules, both ACH debit and credit
transactions would be assigned the same posting
time, 8:30 a.m., and post exactly at the same time
for purposes of measuring an institution’s daylight
overdraft balance. Debit and credit transactions
would not be netted before posting; however,
because all transactions would post exactly at the
same minute, the institution’s account balance
would only change by the net of its activity.
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customers that originate debit
transactions destined to FedACH
customers, which settle according to the
Board’s posting rules. Institutions
currently hold high balances, and most
have access to daylight overdrafts, with
total daylight overdraft capacity
calculated as multiples of capital for
healthy institutions, to ensure the
smooth functioning of the payment
system. Although high balances may not
remain, balances are not likely to drop
precipitously in the near term, giving
institutions time to adjust accountmanagement activity, if needed, to
ensure sufficient balances for all
payment activity settling at 8:30 a.m. In
addition, the Reserve Banks debit funds
to cover ACH credit transactions for any
institution on the highest level of
control under the real-time monitor at
the time of file submission, not when
the payments settle under the posting
rules. The Reserve Banks also will
extend the NSS file submission window
from 7:30 a.m. to 5:30 p.m., beginning
in January 2015, and are evaluating
potential further expansion of NSS
hours in the future. Given these factors,
the Board continues to believe that
posting ACH debit transactions at 8:30
a.m. is the best option for the long-run
safety and efficiency of the payment
system.
The Board acknowledges some of the
competitive concerns expressed by TCH
and agrees with the need to have
settlement options available at the same
time to avoid introducing potential
competitive disparities. In the near
term, the Board believes that extending
the NSS file submission window from
7:30 a.m. to 5:30 p.m. mitigates any
adverse competitive effect of the ACH
debit and commercial check posting
rule changes. In the long run, the Board
believes that any competitive disparity
concerns resulting more broadly from
Reserve Banks’ ability to settle
transactions outside of NSS hours can
be addressed by further expanding NSS
operating hours, and potentially
functionality.
The Board has adopted the posting
rules for ACH debit and commercial
check transactions as proposed.
Effective Dates for Posting Rule
Proposals
As part of its posting rules proposals
for ACH debit and commercial check
transactions, the Board proposed a sixmonth implementation period before
the new posting rules would become
effective. Five commenters, including
four depository institution trade
associations and one governmentsponsored enterprise, indicated that an
effective date six months after the
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publication of the final rule in the
Federal Register would allow enough
time to make necessary operational
changes.32 One commenter, the National
Association of Federal Credit Unions,
requested a one-year implementation
period to allow institutions additional
time to determine if they were affected
by the proposed posting rules and, if so,
to raise capital. Given commenters’
feedback, the Board is adopting an
implementation period of no less than
six months as proposed, and the posting
rule changes for ACH debit and
commercial check transactions will take
effect on July 23, 2015. All items
scheduled to settle on this date and after
will post according to the new posting
rule procedures, regardless of the date of
deposit.
Elsewhere in the Federal Register
under Docket No. R–1473, the Board
also adopted necessary related changes
to the Board’s Regulation J (12 CFR part
210) regarding the timing of when
paying banks settle for check
transactions presented to them by the
Reserve Banks effective on July 23,
2015.
Principles for Future Posting Rules for
the Reserve Banks’ Same-Day ACH
Service
Two commenters, TCH and U.S.
Bank, raised account-management and
competitive disparity concerns
regarding the second principle proposed
by the Board for future posting rules for
the Reserve Banks’ same-day ACH
service. The principle stated that the
Reserve Banks would not post
settlement for same-day ACH
transactions between 6:30 p.m. and 8:30
a.m. the next processing day.
Commenters’ concerns related to the
Reserve Banks’ ability to settle same-day
ACH transactions until 6:30 p.m.
Specifically, the commenters were
concerned that posting these
transactions up to the close of the
Fedwire Funds Service would not allow
sufficient time between the settlement
of same-day ACH transactions and the
close of Fedwire Funds for institutions
to settle other positions amongst
themselves, and that the period between
5:00 p.m. and 6:30 p.m. was outside of
current NSS operating hours, putting
any future private-sector same-day ACH
service providers at a potential
disadvantage relative to the Reserve
Banks’ service. To address this concern,
the Board has modified the second
principle to read, ‘‘The Reserve Banks
32 Commenters were the American Bankers
Association, Credit Union National Association,
Georgia Credit Union league, Missouri Credit Union
Association, and a joint letter from five Federal
Home Loan Banks.
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72117
will not post settlement for same-day
ACH transactions between the close of
the Reserve Banks’ National Settlement
Service and 8:30 a.m. the next
processing day.’’ The modified principle
requires that settlement post within the
NSS operating day before the close of
Fedwire Funds. As a result of the
modification, the third proposed posting
rule principle, which stated that the
Reserve Banks will post settlement for
same-day ACH transactions exchanged
with another operator to support
universal same-day ACH during the
operating hours for the Reserve Banks’
NSS, is no longer needed. The Board
has removed the third principle from
the final principles for establishing
future posting rules for the Reserve
Banks’ same-day ACH service. The
revised principles are as follows:
(1) For each same-day ACH
transmission deadline, the Reserve
Banks will establish expected
distribution times for the same-day ACH
files.
a. The Reserve Banks will post
settlement for same-day ACH debit
transactions no earlier than 15 minutes
after the Reserve Banks’ expected
distribution times for the associated
same-day ACH file.
b. The Reserve Banks will post
settlement for ACH credit and debit
transactions associated with a particular
same-day ACH file distribution time at
the same time.
(2) Settlement will not post between
the close of the Reserve Banks’ National
Settlement Service and 8:30 a.m. on the
next processing day.
In addition, five commenters,
including one commercial banking
organization, one private-sector clearing
and settlement system, and three
depository institution trade
organizations indicated their preference
that the Board always request comment
on new same-day ACH posting rule
proposals, regardless of whether these
rules conformed to the posting rule
principles.33 Commenters believed it
was important to request comment,
given that future material considerations
may emerge that may not be addressed
by the principles and any alterations to
the current same-day ACH service may
require institutions to make significant
changes. The Board continues to believe
that the principles provide a reasonable
gating mechanism to enable flexibility
in the evolution of same-day ACH while
still constraining settlement to the NSS
operating day during core business
hours. The Board expects that
33 Commenters were U.S. Bank, TCH, Credit
Union National Association, Georgia Credit Union
League, and Missouri Credit Union Association.
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institutions can reasonably manage their
Federal Reserve accounts during the
core business day. The Board will assess
each future posting rule for same-day
ACH to determine if public comment
may be warranted based on the specific
circumstances and the environment at
that time and in conformance with the
Board’s ‘‘Principles for Pricing of
Federal Reserve Bank Services.’’ 34
Those principles provide that that the
Board will request comment on
proposed fee or service changes that
would have significant longer-run
effects on the nation’s payment system.
The Board has adopted the same-day
ACH principles as revised earlier,
effective on December 5, 2014.
Language Clarification to Section II.G.3
The Board received no comments on
its proposed language clarification to
part II of the PSR policy regarding
operational changes in the
administration of the policy as it relates
to U.S. branches and agencies of FBOs.
The Board has adopted the proposed
language changes to section II.G.3 of the
PSR policy as proposed effective on
December 5, 2014.
IV. Additional Technical Revisions to
the Posting Rules
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The Board has revised the PSR
policy’s posting rules to conform to the
current deposit deadline for Treasury
checks, postal money orders, local
Federal Reserve Bank checks, and
savings bond redemptions in separately
sorted deposits, which post at 8:30 a.m.
The posting rule currently reflects a
previous deposit deadline for these
items at 12:01 a.m. local time or the
local deposit deadline, whichever is
later.35 Additionally, the Board has
revised the posting rules to conform to
the current deposit deadline for
Treasury checks, postal money orders,
and savings bond redemptions in
separately sorted deposits which post at
5:00 p.m. The posting rule currently
reflects a previous deposit deadline for
these items at 4:00 p.m.36 The Board is
removing these obsolete deposit
deadline references and, in both cases,
indicating that the posting time will
apply to items deposited by the latest
applicable deposit deadline preceding
the posting time.
34 The Board’s ‘‘Principles for Pricing of Federal
Reserve Bank Services’’ are available at http://
www.federalreserve.gov/paymentsystems/pfs_
principles.htm.
35 At this time, for posting at 8:30 a.m., the
electronic deposit deadline is 5:00 a.m. the same
day and the paper check deposit deadline is 7:00
p.m. on the previous business day.
36 At this time, the deposit deadline is 10:00 a.m.
for items posting at 5:00 p.m.
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As the updated deposit deadlines are
already in effect for the transactions
described earlier, institutions’ Federal
Reserve account balances are not
affected by these updates to the
incorrectly stated deposit deadlines in
the posting rules. These revisions are
effective on December 5, 2014.
V. Competitive Impact Analysis
The Board conducts a competitive
impact analysis when it considers a rule
or policy change that may have a
substantial effect on payment system
participants, such as that being
proposed for the posting of ACH debit
and commercial check transactions.
Specifically, the Board determines
whether there would be a direct and
material adverse effect on the ability of
other service providers to compete with
the Federal Reserve due to differing
legal powers or due to the Federal
Reserve’s dominant market position
deriving from such legal differences.37
The Board believes that there are no
adverse effects resulting from the
changes due to legal differences.
Shifting the posting of ACH debit
transactions to 8:30 a.m. brings the
settlement of ACH debit transactions
processed by the Reserve Banks’
FedACH service in line with the privatesector ACH operator, EPN. The postingrule change benefits not only FedACH
participants that originate debit
transactions but also EPN customers
that originate debit transactions
destined to FedACH customers, which
settle according to the Board’s posting
rules. The Board also believes that the
implementation window will provide
ample time for institutions to make
account-management changes, if any.
Under Regulation J, the Reserve Banks
have the legal ability to obtain same-day
settlement for checks they present
before the paying bank’s banking day
cutoff hour through ‘‘auto-charge,’’ that
is, a direct debit to the Federal Reserve
account of the paying bank or its
correspondent settlement agent.38
Under the amendments to Regulation J
explained elsewhere in this Federal
Register, the Reserve Banks will have
the right to debit the account of the
paying bank or its correspondent
settlement agent on the next clock hour
or half-hour that is at least one half-hour
after presentment. In contrast, when a
private-sector bank presents a paper
check by 8:00 a.m. for same-day
settlement, Regulation CC requires the
paying bank to settle for the check by
sending a Fedwire Funds transfer to the
presenting bank by the close of Fedwire
37 Federal
38 12
PO 00000
Reserve Regulatory Service, 7–145.2.
CFR 210.9(b)(1) and (b)(5).
Frm 00012
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(or by another agreed upon method).39
Thus, Reserve Banks may present
checks later in the day for same-day
settlement than private-sector banks. In
addition, Reserve Banks may obtain
settlement earlier in the day than
private-sector collecting banks and, in
turn, may pass credits for deposited
checks earlier in the day without
incurring significant intraday float.
In March 1998, the Board requested
comment on whether the legal
differences between rights of the
Reserve Banks and the private-sector
presenting banks provided the Reserve
Banks with a competitive advantage and
whether the Board should take action to
reduce the differences. Commenters
generally concluded that the costs of
further changes outweighed any
advantage of the Reserve Banks.40 In
particular, commenters noted the
efficiency of the Reserve Bank’s autocharge process for paying banks, and
stated that moving the private-sector
presentment deadline to later in the day
or eliminating the direct debit of Federal
Reserve accounts for check
presentments would result in higher
costs to paying banks and their business
customers in terms of account
management, settlement funds transfer
fees, and shortened processing
windows, and that those costs would
outweigh the benefits gained by
presenting banks. Based on an analysis
of the comments, the Board took no
further action.
For the vast majority of checks
presented by private-sector banks today,
which are presented in electronic form,
settlement occurs as agreed between the
presenting bank and paying bank. Banks
may determine, as part of the agreement
between the presenting bank and paying
bank, the time at which settlement for
checks is required to be funded.
Furthermore, for collecting banks and
paying banks that opt to use a check
clearinghouse, the clearinghouses have
the option to use NSS to effect
settlement of checks or may settle by
directing their members to initiate funds
transfers over the Reserve Banks’
Fedwire Funds Service. Beginning in
January 2015, the NSS file submission
window will be 7:30 a.m. to 5:30 p.m.
Fedwire Funds operating hours begin at
9:00 p.m. the previous calendar day and
end at 6:30 p.m. As adopted in this
Federal Register document, effective on
July 23, 2015, the Reserve Banks will
settle commercial check transactions at
39 12
CFR 229.36(f)(2).
request for comment and the subsequent
notice of the Board’s decision can be found,
respectively, at 63 FR 12700 (March 16, 1998) and
63 FR 68701 (December 14, 1998).
40 The
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8:30 a.m., 1:00 p.m., and 5:30 p.m. and
debits from corrections and adjustments
amounting to $1 million or more will
settle after the close of Fedwire Funds
Service. A limited number of
commercial check debit and smalldollar credit corrections and
adjustments post after the close of
Fedwire. Such late posting ensures that
institutions only benefit intraday from
detected processing errors and that an
institution could not receive a debit
correction or adjustment before the
associated check transaction posted.
Given the minimal occurrence of largevalue check corrections and adjustments
and the low value of other check
corrections and adjustments, the Board
does not believe posting these
transactions after the close of Fedwire
creates a direct and material competitive
disparity between Reserve Bank and
private-sector service providers.41
Under the adopted posting rules, the
bulk of the Reserve Banks’ postings of
credits to depositing banks and debits to
paying banks for commercial check
transactions will shift to earlier in the
day. The value of checks a bank sends
to the Reserve Banks could be higher or
lower than the value it receives from the
Reserve Banks. As a result, the earlier
posting of commercial check
transactions may be viewed as more or
less attractive, depending on whether
the value of an institution’s check
credits is higher or lower than the value
of its check debits. Further, privatesector banks can achieve improvements
similar to those provided by the
proposed changes through private
agreements among participants, as well
as the use of the NSS.
Given the factors discussed earlier,
the Board does not believe that the
changes to the posting rules would have
a direct and material adverse effect on
other service providers to compete
effectively with Reserve Banks in
providing similar services.
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VI. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR part 1320 appendix A.1), the
Board reviewed the PSR policy changes
it is considering under the authority
delegated to the Board by the Office of
Management and Budget. No collection
of information pursuant to the
Paperwork Reduction Act are contained
in the policy statement.
41 In addition to debit corrections and
adjustments, small-dollar credit corrections and
adjustments also post after the close of Fedwire
Funds.
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72119
VII. Federal Reserve Policy on Payment
System Risk
Revisions to Section II.G.3 of the PSR
Policy
Technical Revisions to the Posting Rules
Effective December 5, 2014, section
II.G.3 of the ‘‘Federal Reserve Policy on
Payment System Risk’’ is amended to
clarify the Reserve Banks’
administration of the policy for U.S.
branches and agencies of foreign
banking organizations as follows.
Effective on December 5, 2014, the
‘‘Federal Reserve Policy on Payment
System Risk’’ section II.A. under the
heading ‘‘Procedures for Measuring
Daylight Overdrafts’’ and the
subheadings ‘‘Post at 8:30 a.m. eastern
time’’ and ‘‘Post at 5:00 p.m. eastern
time’’ is amended as follows.
Post at 8:30 a.m. eastern time:
+/¥ Term deposit maturities and
accrued interest
+/¥ Government and commercial ACH
credit transactions 42
+ Treasury checks, postal money orders,
local Federal Reserve Bank checks,
and savings bond redemptions in
separately sorted deposits; these
items must be deposited by the
latest applicable deposit deadline
preceding the posting time.
+ Advance-notice Treasury investments
¥ Penalty assessments for tax payments
from the Treasury Investment
Program (TIP).43
Post at 5:00 p.m. eastern time:
+/¥ FedACH SameDay Service
transactions
+/¥ Immediate settlement ACH
transactions; these transactions
include ACH return items and
check-truncation items.
+ Treasury checks, postal money orders,
and savings bond redemptions in
separately sorted deposits; these
items must be deposited by the
latest applicable deposit deadline
preceding the posting time.
+ Local Federal Reserve Bank checks;
these items must be presented
before 3:00 p.m. eastern time
42 Institutions that are monitored in real time
must fund the total amount of their commercial
ACH credit originations before the transactions are
processed by the Reserve Banks. If the Federal
Reserve receives commercial ACH credit
transactions from institutions monitored in real
time after the scheduled close of the Fedwire Funds
Service, these transactions are currently processed
at 12:30 a.m. the next business day, or by the ACH
deposit deadline, whichever is earlier. The Account
Balance Monitoring System provides intraday
account information to the Reserve Banks and
institutions and is used primarily to give authorized
Reserve Bank personnel a mechanism to control
and monitor account activity for selected
institutions. For more information on ACH
transaction processing, refer to the ACH Settlement
Day Finality Guide available through the Federal
Reserve Financial Services Web site at http://
www.frbservices.org.
43 The Reserve Banks will identify and notify
institutions with Treasury-authorized penalties on
Thursdays. In the event that Thursday is a holiday,
the Reserve Banks will identify and notify
institutions with Treasury-authorized penalties on
the following business day. Penalties will then be
posted on the business day following notification.
PO 00000
Frm 00013
Fmt 4700
Sfmt 4700
3. Multi-District Institutions
An institution maintaining mergertransition accounts or an Edge or
agreement corporation that accesses
Fedwire through master accounts in
more than one Federal Reserve District
is expected to manage its accounts so
that the total daylight overdraft position
across all accounts does not exceed the
institution’s net debit cap. One Reserve
Bank will act as the administrative
Reserve Bank and will have overall riskmanagement responsibilities for an
institution maintaining master accounts
in more than one Federal Reserve
District. For domestic institutions that
have branches in multiple Federal
Reserve Districts, the administrative
Reserve Bank generally will be the
Reserve Bank where the head office of
the bank is located.
U.S. branches and agencies of the
same foreign bank (also referred to as an
FBO family) are assigned one net debit
cap per FBO family. FBO families that
access Fedwire through master accounts
in more than one Federal Reserve
District are expected to manage their
accounts so that the daylight overdraft
position in each account does not
exceed the capacity allocated to that
account from the FBO family’s net debit
cap. The administrative Reserve Bank
generally is the Reserve Bank that
exercises the Federal Reserve’s oversight
responsibilities under the International
Banking Act.44 The administrative
Reserve Bank, in consultation with the
management of the foreign bank’s U.S.
operations and with Reserve Banks in
whose territory other U.S. agencies or
branches of the same foreign bank are
located, may recommend that these
agencies and branches not be permitted
to incur overdrafts in Federal Reserve
accounts. Alternatively, the
administrative Reserve Bank, after
similar consultation, may recommend
that all or part of the foreign family’s net
debit cap be allocated to the Federal
Reserve accounts of agencies or
branches that are located outside of the
administrative Reserve Bank’s District;
in this case, the Reserve Bank in whose
Districts those agencies or branches are
44 12
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05DER1
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Federal Register / Vol. 79, No. 234 / Friday, December 5, 2014 / Rules and Regulations
located will be responsible for
administering all or part of this policy.45
Changes to the Posting Rules for ACH
Debit and Commercial Check
Transactions
Effective on July 23, 2015, the
‘‘Federal Reserve Policy on Payment
System Risk’’ section II.A. under the
heading ‘‘Procedures for Measuring
Daylight Overdrafts’’ is amended as
follows.
Procedures for Measuring Daylight
Overdrafts 46
wreier-aviles on DSK5TPTVN1PROD with RULES
Opening Balance (Previous Day’s
Closing Balance)
Post at 8:30 a.m. eastern time:
+/¥ Term deposit maturities and
accrued interest
+/¥ Government and commercial ACH
transactions 47
+/¥ Commercial check transactions,
including returned checks 48
+ Treasury checks, postal money
orders, local Federal Reserve Bank
checks, and savings bond
redemptions in separately sorted
deposits; these items must be
deposited by the latest applicable
deposit deadline preceding the
posting time.
45 As in the case of Edge and agreement
corporations and their branches, with the approval
of the designated administrative Reserve Bank, a
second Reserve Bank may assume the responsibility
for administering this policy regarding particular
foreign branch and agency families. This would
often be the case when the payments activity and
national administrative office of the foreign branch
and agency family is located in one District, while
the oversight responsibility under the International
Banking Act is in another District. If a second
Reserve Bank assumes management responsibility,
monitoring data will be forwarded to the designated
administrator for use in the supervisory process.
46 This schedule of posting rules does not affect
the overdraft restrictions and overdraftmeasurement provisions for nonbank banks
established by the Competitive Equality Banking
Act of 1987 and the Board’s Regulation Y (12 CFR
225.52).
47 Institutions that are monitored in real time
must fund the total amount of their commercial
ACH credit originations in order for the transactions
to be processed. If the Federal Reserve receives
commercial ACH credit transactions from
institutions monitored in real time after the
scheduled close of the Fedwire Funds Service,
these transactions are currently processed at 12:30
a.m. the next business day, or by the ACH deposit
deadline, whichever is earlier. The Account
Balance Monitoring System provides intraday
account information to the Reserve Banks and
institutions and is used primarily to give authorized
Reserve Bank personnel a mechanism to control
and monitor account activity for selected
institutions. For more information on ACH
transaction processing, refer to the ACH Settlement
Day Finality Guide available through the Federal
Reserve Financial Services Web site at http://
www.frbservices.org.
48 For the three commercial check transaction
posting times, the Reserve Banks will post credits
and debits to institutions’ accounts for checks
deposited and presented, respectively, at least 30
minutes before the posting time.
VerDate Sep<11>2014
16:53 Dec 04, 2014
Jkt 235001
+ Advance-notice Treasury investments
¥ Penalty assessments for tax
payments from the Treasury
Investment Program (TIP).49
Post at 8:30 a.m. eastern time and
hourly, on the half-hour, thereafter:
+/¥ Main account administrative
investment or withdrawal from TIP
+/¥ Special Direct Investment (SDI)
administrative investment or
withdrawal from TIP
+ 31 CFR part 202 account deposits
from TIP
+ Credit corrections amounting to $1
million or more 50
+ Credit adjustments amounting to $1
million or more 51
¥ Uninvested paper tax (PATAX)
deposits from TIP
¥ Main account balance limit
withdrawals from TIP
¥ Collateral deficiency withdrawals
from TIP
¥ 31 CFR part 202 deficiency
withdrawals from TIP
Post at 11:00 a.m. eastern time and
hourly thereafter:
+ Currency and coin deposits
Post at 1:00 p.m. eastern time:
+/¥ Commercial check transactions,
including returned checks
Post at 5:30 p.m. eastern time:
+/¥ FedACH SameDay Service return
transactions.
+/¥ Commercial check transactions,
including returned checks
Post after the close of Fedwire Funds
Service:
+/¥ All other transactions. These
transactions include the following:
currency and coin shipments;
noncash collection; term-deposit
settlements; Federal Reserve Bank
checks presented after 3:00 p.m.
eastern time but before 3:00 p.m.
local time; foreign check
transactions; small-dollar credit
corrections and adjustments; and all
debit corrections and adjustments.
Discount-window loans and
repayments are normally posted
after the close of Fedwire as well;
however, in unusual circumstances
a discount window loan may be
posted earlier in the day with
repayment 24 hours later, or a loan
49 The Reserve Banks will identify and notify
institutions with Treasury-authorized penalties on
Thursdays. In the event that Thursday is a holiday,
the Reserve Banks will identify and notify
institutions with Treasury-authorized penalties on
the following business day. Penalties will then be
posted on the business day following notification.
50 Corrections are account entries made to correct
discrepancies detected by a Reserve Bank during
the initial processing of checks.
51 Adjustments are account entries made to
correct discrepancies detected by an institution
after entries have posted to Federal Reserve
accounts.
PO 00000
Frm 00014
Fmt 4700
Sfmt 4700
may be repaid before it would
otherwise become due.
Equals:
Closing Balance.
*
*
*
*
*
Dated: December 1, 2014.
By order of the Board of Governors of the
Federal Reserve System,
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014–28664 Filed 12–4–14; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1238
[No. 2014–N–15]
Orders: Reporting by Regulated
Entities of Stress Testing Results as of
September 30, 2014
Federal Housing Finance
Agency.
ACTION: Orders.
AGENCY:
In this document, the Federal
Housing Finance Agency (FHFA)
provides notice that it issued Orders
dated December 1, 2014, with respect to
reporting under section 165(i)(2) of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act).
SUMMARY:
Effective December 5, 2014. Each
Order is applicable on December 1,
2014.
DATES:
Naa
Awaa Tagoe, Senior Associate Director,
Office of Financial Analysis, Modeling
and Simulations, (202) 649–3140,
naaawaa.tagoe@fhfa.gov; Stefan
Szilagyi, Examination Manager,
FHLBank Modeling, FHLBank Risk
Modeling Branch, (202) 649–3515,
Stefan.szilagy@fhfa.gov; or Mark D.
Laponsky, Deputy General Counsel,
Office of General Counsel, (202) 649–
3054 (these are not toll-free numbers),
mark.laponsky@fhfa.gov. The telephone
number for the Telecommunications
Device for the Hearing Impaired is (800)
877–8339.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
I. Background
FHFA is responsible for ensuring that
the regulated entities operate in a safe
and sound manner, including the
maintenance of adequate capital and
internal controls, that their operations
and activities foster liquid, efficient,
competitive, and resilient national
housing finance markets, and that they
carry out their public policy missions
E:\FR\FM\05DER1.SGM
05DER1
Agencies
[Federal Register Volume 79, Number 234 (Friday, December 5, 2014)]
[Rules and Regulations]
[Pages 72112-72120]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28664]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 210
[Docket No. OP-1472]
Federal Reserve Policy on Payment System Risk; Procedures for
Measuring Daylight Overdrafts
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Policy statement.
-----------------------------------------------------------------------
SUMMARY: The Board of Governors of the Federal Reserve System (Board)
has adopted revisions to part II of the Federal Reserve Policy on
Payment System Risk (PSR policy) related to the procedures for
measuring balances intraday in institutions' accounts at the Federal
Reserve Banks (Reserve Banks). The changes relate to the Board's
procedures for posting debit and credit entries to institutions'
Federal Reserve accounts for automated clearinghouse (ACH) debit
transactions and commercial check transactions. Elsewhere in the
Federal Register under Docket No. R-1473, the Board has adopted related
changes to the Board's Regulation J that affect when paying banks
settle for check transactions presented to them by the Reserve Banks.
Additionally, in this document, the Board has adopted a set of
principles for establishing future posting procedures for the Reserve
Banks' same-day ACH service. The Board has also adopted a change in
language of the PSR policy intended to clarify the Reserve Banks'
administration of the policy for U.S. branches and agencies of foreign
banking organizations. Finally, the Board has adopted two technical
revisions to the posting procedures to reflect deposit deadlines
already in effect for Treasury checks, postal money orders, local
Federal Reserve Bank checks, and savings bond redemptions in separately
sorted deposits.
DATES: Effective Dates: The policy changes related to the set of
principles for establishing future posting procedures for the Reserve
Banks' same-day ACH service, the Reserve Banks' administration of the
policy for U.S. branches and agencies of foreign banking organizations,
and the technical revisions to the posting procedures for Treasury
checks, postal money orders, local Federal Reserve Bank checks, and
savings bond redemptions will take effect on December 5, 2014. The
policy changes to the Board's procedures for posting debit and credit
entries to institutions' Federal Reserve accounts for ACH debit and
commercial check transactions will take effect on July 23, 2015. All
items scheduled to settle on this date and after will post according to
the new posting rule procedures for these transactions, regardless of
date of deposit.
FOR FURTHER INFORMATION CONTACT: Susan V. Foley, Senior Associate
Director (202/452-3596), Jeffrey D. Walker, Assistant Director (202/
721-4559), or Michelle D. Olivier, Senior Financial Services Analyst
(202/452-2404), Division of Reserve Bank Operations and Payment
Systems, Board of Governors of the Federal Reserve System; for users of
Telecommunications Device for the Deaf (TDD) only, contact 202/263-
4869.
SUPPLEMENTARY INFORMATION:
I. Background
On December 10, 2013, the Board requested comment on several
changes to part II of the PSR policy intended to enhance the efficiency
of the payment system.\1\ Technology and processing improvements have
enabled payment systems and depository institutions to achieve
significant efficiencies since the Board first established the
procedures, referred to as posting rules, to measure depository
institutions' intraday Federal Reserve account balances. The proposed
changes to these posting rules are intended to align them with current
operations and processing times and to strategically position the rules
for future advancements in the speed of clearing and settlement.
---------------------------------------------------------------------------
\1\ 78 FR 74130 (Dec. 10, 2013). The Board's PSR policy is
available at www.federalreserve.gov/paymentsystems/psr_policy.htm.
---------------------------------------------------------------------------
Commercial and Government ACH Debit Transactions
The Board proposed moving the posting times for commercial and
government ACH debit transactions processed overnight to 8:30 a.m. from
11:00 a.m. eastern time (ET) to coincide with the posting time for ACH
credit transactions processed overnight.\2\ Under the proposal, other
types of ACH transactions, including same-day ACH and certain ACH
return items, would not be affected and would continue to post at 5:00
p.m.
---------------------------------------------------------------------------
\2\ All times are eastern time unless otherwise specified.
In 2008, the Board requested comment on moving the posting time
of ACH debit transactions from 11:00 a.m. to 8:30 a.m. to coincide
with the posting of ACH credit transactions but decided not to
pursue the change because of economic conditions at the time and the
additional costs and liquidity pressures that could be placed on
some institutions. The request for comment and the subsequent notice
of the Board's decision not to pursue the proposed changes can be
found, respectively, at 73 FR 12443 (Mar. 7, 2008) and 73 FR 79127
(Dec. 24, 2008).
---------------------------------------------------------------------------
The Board outlined four potential benefits to shifting earlier the
posting for ACH debit transactions. First, posting ACH debit
transactions according to the proposed posting rules would simplify
account management by allowing institutions to fund the net of all ACH
activity at a single posting time, rather than funding debit and credit
transactions separately. Second, the change would increase liquidity
early in the day both for institutions that originate ACH debit
transactions over the FedACH network and for those institutions that
originate ACH debit transactions over the Electronic Payments Network
(EPN), the other ACH operator, but have transactions delivered to
receiving institutions over the FedACH network (interoperator
transactions).\3\ Third, moving the posting time for ACH debit
transactions to 8:30 a.m. would align the Reserve Banks' FedACH
settlement times with those of EPN. The Board believes that this change
would remove any potential competitive disparities between the two ACH
operators and their participants arising from the different settlement
times for ACH debit transactions. Fourth, the earlier posting of ACH
debit transactions would increase the efficiency of the ACH network by
aligning better the settlement of ACH debit transactions with their
processing. Additionally, posting ACH debit transfers at 8:30 a.m.
would better conform to the Board's principles for measuring daylight
overdrafts, specifically the principle that encourages posting times to
be as close as possible to the delivery of payments to the receiving
institution.\4\
---------------------------------------------------------------------------
\3\ Liquidity refers to balances in Federal Reserve accounts to
make payments. An increase in liquidity involves higher account
balances, which could result in fewer daylight overdrafts.
\4\ The Board's four principles for measuring daylight
overdrafts are as follows: (1) The measurement procedures should not
provide intraday float to participants. (2) The measurement
procedures should reflect the times at which payor institutions are
obligated to pay for transactions. (3) The users of payment services
should be able to control their use of intraday credit. (4) The
Reserve Banks should not obtain any competitive advantage from the
measurement procedures. The Board developed the principles in the
early 1990s; for the latest version, refer to 73 FR 12443 (Mar. 7,
2008).
---------------------------------------------------------------------------
[[Page 72113]]
Commercial Check Transactions
The Board proposed several revisions to its posting rules for
commercial check transactions to reflect today's nearly 100 percent
electronic check-processing environment. Specifically, the Board
proposed to post commercial check transactions, both credits and
debits, at 8:30 a.m., 1:00 p.m., and 5:30 p.m., with the specific
posting time depending on when a check is deposited with the Reserve
Banks (for credit) or presented by the Reserve Banks (for debit).\5\
Credits associated with any commercial checks received by the Reserve
Banks' deposit deadlines would post on a rolling basis at the next
available posting time at least 30 minutes after receipt by the Reserve
Banks.\6\ Similarly, debits associated with electronic check
transactions would post on a rolling basis at the next available
posting time that is at least 30 minutes after presentment to the
paying bank. To accommodate the extra time required to make paper
presentments, debits for the few remaining paper commercial check
transactions, which account for less than one-tenth of 1 percent of
checks processed by the Reserve Banks, would post at the final posting
time of 5:30 p.m. on the day the paper check is presented to the paying
bank.\7\
---------------------------------------------------------------------------
\5\ Under the current posting rules, commercial check credits
post according to one of two options: (1) All credits post at a
single, float-weighted posting time, or (2) fractional credits post
between the hours of 11:00 a.m. and 6:00 p.m., depending on the
institution's preference. The second option lets the institution
receive portions of its available check credits on the clock hours
between 11:00 a.m. and 6:00 p.m. The option selected applies to all
check deposits posted to an institution's account. Both crediting
options are based on surveys of check presentment times and vary
across time zones. Commercial check debits are posted on the next
clock hour at least one hour after presentment beginning at 11:00
a.m. for paper checks and 1:00 p.m. local time for electronic
checks, and ending at 3:00 p.m. local time.
\6\ Immediate credit would not be passed for deferred-
availability deposit products. Customer availability for files
deposited for these services would be the same as if the file were
received at a deposit deadline before 8:00 a.m. the next business
day.
Currently, the Reserve Banks' electronic check deposit deadlines
are 9:00 p.m. on the previous business day, and 1:00 a.m., 5:00
a.m., and 10:00 a.m. on the settlement day. The paper check deposit
deadline is 7:00 p.m. on the previous business day. As a result,
depositing banks could expect credit for all electronic items
deposited for the 9:00 p.m., 1:00 a.m., and 5:00 a.m. deposit
deadlines to post at 8:30 a.m., and credit for electronic items
deposited for the 10:00 a.m. deadline to post at 1:00 p.m. Paper
items deposited by 7:00 p.m. on the previous day would post at 8:30
a.m.
\7\ The posting of debits associated with electronic
presentments earlier than the debits associated with paper check
presentments may contribute marginally to a given paying bank's
incentive to require that checks be presented to it in paper form.
Electronic check presentment is now pervasive, however, and the
Board does not believe that a paying bank that receives presentments
electronically would be swayed by the later posting time to return
to paper presentment.
Credits for checks presented in paper form would not be delayed
to accommodate the extra time required for presentment and would
post at the next available posting time at least 30 minutes after
receipt by the Reserve Banks. The Reserve Banks will monitor the
value of commercial checks presented in paper form, and should it
increase materially, the Board may propose changes to the posting
rules to reduce float.
---------------------------------------------------------------------------
Under the current posting rules and Regulation J, at least one hour
must elapse between presentment and posting to allow limited
verification of cash letters. The Board proposed reducing this
requirement from one hour to 30 minutes. As a result of the widespread
use of electronic check-handling methods and the extremely small value
of paper presentments, the Board believes 30 minutes is now sufficient
for institutions to verify cash letters.\8\ Additionally, as part of
the proposed posting rules, the Reserve Banks would present multiple
electronic cash letters per day to institutions that receive electronic
presentments, with the first presentment by 8:00 a.m. for settlement at
8:30 a.m.\9\
---------------------------------------------------------------------------
\8\ The Board issued a companion document requesting comment on
proposed changes to Regulation J, under which a paying bank would be
required to settle for an item by as early as 8:30 a.m. and as soon
as one half-hour after it receives the item from the Reserve Banks.
The request for comment can be found at 78 FR 74041 (Dec. 10, 2013).
Elsewhere in the Federal Register under Docket No. R-1473, the Board
adopted these changes to Regulation J.
\9\ The timing and frequency of presentments is subject to
change by the Reserve Banks to align better with processing
advancements and product type.
---------------------------------------------------------------------------
The Board also proposed to revise the posting rules for large-value
check corrections and adjustments amounting to $1 million or more.\10\
In alignment with the proposed posting times for commercial check
transactions, the Board proposed to move the settlement of large-value
credit corrections and adjustments to begin at 8:30 a.m. and hourly
thereafter on the half-hour depending on when the discrepancy is
detected.\11\ Additionally, the Board proposed to post large-value
debit corrections after the close of the Fedwire Funds Service, the
same time as large-value debit adjustments are posted.\12\
---------------------------------------------------------------------------
\10\ Corrections are account entries made to correct
discrepancies detected by a Reserve Bank during the initial
processing of checks. Adjustments are account entries made to
correct discrepancies detected by an institution after entries have
posted to Federal Reserve accounts.
\11\ Currently, credit corrections and adjustments amounting to
$1 million or more post at 11:00 a.m. and hourly thereafter,
coinciding with the current posting rules for commercial checks.
\12\ Currently, debit corrections amounting to $1 million or
more post at 11:00 a.m. and hourly thereafter.
---------------------------------------------------------------------------
The Board outlined four potential benefits from the proposed
changes to its commercial check posting rules. First, the proposed
posting rules would give earlier availability for items deposited with
the Reserve Banks based on an institution's deposit behavior and would
provide earlier availability for credit adjustments and corrections.
Second, these changes would simplify the posting rule structure and, as
a result, reduce the administrative burden on institutions and Reserve
Banks. Third, the proposed rules would reduce the amount of intraday
float currently provided by the Reserve Banks as a result of posting
rules that do not adequately reflect current operations.\13\ Fourth,
the proposals would align the posting rules with the significant shift
over the past decade from paper to electronic check clearing. The
proposed commercial check posting rules would conform better to the
Board's principles for measuring daylight overdrafts, specifically the
principles that discourage providing intraday float and encourage
posting times to be as close as possible to the delivery of payments to
the receiving institution.
---------------------------------------------------------------------------
\13\ Under the current posting rules, check credits and paper
check debits begin posting at 11:00 a.m., whereas electronic check
debits begin posting at 1:00 p.m. local time. As a result, the
current measurement procedures provide intraday float, which has
increased over time as electronic deposits and presentments have
expanded.
---------------------------------------------------------------------------
As part of its posting rule proposals, the Board assessed the
effect of the ACH debit and commercial check transaction posting rule
changes on institutions' account balances and daylight overdraft fees
both separately and combined. The Board recognized that the combined
effect of the changes would, on average, reduce institutions' Federal
Reserve account balances at 8:30 a.m. for the majority of master
accounts that settle ACH and commercial check activity (94 percent of
approximately 3,500 master accounts) based on second-quarter 2013
payment data.\14\ Less than 1 percent of
[[Page 72114]]
these institutions, only 33 institutions, would incur overdraft fees in
any of the six two-week reserve maintenance periods within the quarter
analyzed. The low incidence of fees can be attributed to the current
levels of pledged collateral and collateralized daylight overdrafts
receiving a zero fee, the $150 fee waiver covering modest amounts of
uncollateralized overdrafts, and the high balances held in Federal
Reserve accounts. Twenty-eight of the 33 institutions are eligible to
incur daylight overdrafts and could avoid paying higher fees by
pledging (additional) collateral, holding higher balances and receiving
interest on their Federal Reserve balances, or arranging early-morning
funding. The remaining 5 institutions are ineligible to receive
intraday credit and would need to increase funding in their accounts
either by holding higher balances (and in some cases potentially
receiving interest on their Federal Reserve balances) or by arranging
early-morning funding.\15\
---------------------------------------------------------------------------
\14\ Although most institutions that maintain master accounts
are involved in both ACH and commercial check activity,
approximately half of these institutions settle their activity
through a correspondent rather than their own master account.
In connection with the 2013 proposal, analysis reflects activity
at the master account level from the second quarter 2013 and is
intended to be illustrative only. All institutions should consider
their own historical payment activity when evaluating the effect of
the posting rule changes.
The average balance calculation only includes days in the second
quarter of 2013 for which institutions had ACH debit or commercial
check payment activity. The simulation of balances focused only on
balances held at 8:30 a.m., while the analysis of fees and
collateral took into account balances held and collateral pledged
over the entire 21.5-hour Fedwire operating day.
\15\ These institutions include bankers' banks and Federal Home
Loan Banks, and not all would be eligible to earn interest on their
Federal Reserve balances.
---------------------------------------------------------------------------
For both the ACH debit and commercial check posting rule proposals,
the Board proposed an effective date of no less than six months from
the publication of the revised PSR policy to give institutions
sufficient time to make any necessary changes.
Principles for Future Posting Rules for the Reserve Banks' Same-Day ACH
Service
Given the Board's expectations that the Reserve Banks' same-day ACH
service will evolve, with the potential establishment of additional
processing cycles that require new posting times for settlement, the
Board proposed establishing a set of principles that would be applied
to any new same-day ACH posting rules.\16\ Under the proposal, the
Board would generally request public comment on changes to the posting
rules only when the changes deviate from the principles. Such
principles would apply to the Reserve Banks' voluntary (opt-in) same-
day ACH service and to any future same-day ACH service, such as a
universal same-day ACH service covering all participants in the ACH
network.\17\ These principles, which would apply in addition to the
current four posting-rules principles, were proposed as follows:\18\
---------------------------------------------------------------------------
\16\ The current processing schedule has a 2:00 p.m. deadline
for submitting same-day, forward ACH transactions for settlement at
5:00 p.m. Return same-day ACH transactions post at 5:30 p.m.
\17\ In 2011, NACHA, a not-for-profit association that manages
the development, administration, and governance of the ACH network
for participating depository institutions, proposed amendments to
its operating rules to enable ACH debit and credit transfers to be
cleared and settled on the same day that they are originated. The
expedited service would require the participation of all receiving
institutions in the ACH network, going beyond the Reserve Banks'
voluntary service. Although the majority of NACHA's voting members
were in favor of the proposal, NACHA did not receive the 75 percent
positive votes required for passage. NACHA is currently evaluating
modifications to its earlier proposal to address concerns expressed
regarding it.
\18\ These four posting-rule principles are outlined in a
footnote earlier in this document.
---------------------------------------------------------------------------
(1) For each same-day ACH transmission deadline, the Reserve Banks
will establish expected distribution times for the same-day ACH files.
a. The Reserve Banks will post settlement for same-day ACH debit
transactions no earlier than 15 minutes after the Reserve Banks'
expected distribution times for the associated same-day ACH file.
b. The Reserve Banks will post settlement for ACH credit and debit
transactions associated with a particular same-day ACH file
distribution time at the same time.
(2) The Reserve Banks will not post settlement for same-day ACH
transactions between 6:30 p.m. and 8:30 a.m. on the next processing
day.
(3) The Reserve Banks will post settlement for same-day ACH
transactions exchanged with another operator to support universal same-
day ACH during the operating hours for the Reserve Banks' National
Settlement Service (NSS).\19\
---------------------------------------------------------------------------
\19\ NSS is a multilateral settlement service owned and operated
by the Reserve Banks. The service is offered to institutions that
settle for participants in clearinghouses, financial exchanges, and
other clearing and settlement groups. Settlement agents, acting on
behalf of those institutions in a settlement arrangement,
electronically submit settlement files to the Reserve Banks. Files
are processed upon receipt, and entries are automatically posted to
the institutions' Federal Reserve accounts. The NSS file submission
window is currently 8:30 a.m. to 5:00 p.m.
---------------------------------------------------------------------------
The Board proposed that the principles for future posting rules for
the Reserve Banks' same-day ACH service would be effective on final
approval.
Language Clarification in Section II.G.3
The Board proposed a language clarification to part II of the PSR
policy to explain more clearly the Reserve Banks' administration of the
PSR policy as it relates to U.S. branches and agencies of foreign
banking organizations (FBOs). The proposed language would clarify that
U.S. branches and agencies of the same foreign bank (also referred to
as an FBO family) are expected to manage their accounts so that the
daylight overdraft position in each account does not exceed the
capacity allocated to that account from the FBO family's net debit
cap.\20\ In the past, the Reserve Banks monitored the master accounts
of FBO families on a consolidated basis rather than requiring an FBO
family to allocate its net debit cap if it wanted to incur daylight
overdrafts in more than one account across the Federal Reserve.
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\20\ The previous language in the PSR policy that related to the
administration of multiple master accounts was somewhat ambiguous
and could have been interpreted to allow the Federal Reserve to
administer these accounts as is the current practice (separate
administration for the multiple master accounts) or the previous
practice (consolidated administration).
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The Board proposed that the language change clarifying the Reserve
Banks' administration of the policy for U.S. branches and agencies of
FBOs would be effective on final approval.
III. Summary of Public Comments and Analysis
The Board received thirteen comment letters in response to its PSR
policy proposals.\21\ Comments were submitted by seven depository
institution trade organizations, one private-sector clearing and
settlement system, one commercial banking organization, one bankers'
bank, one government-sponsored enterprise, and two individuals. Most
commenters expressed support for the posting-rule proposals' intent to
improve the speed and efficiency of the payment system but also raised
specific concerns. The Board considered these comments in finalizing
its changes to the PSR policy, as discussed in more detail below.
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\21\ The comment letters are available at http://www.federalreserve.gov/apps/foia/proposedregs.aspx.
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Effect on Credit Unions and Small Institutions
Five commenters, including four depository institution trade
organizations and a bankers' bank, expressed concerns regarding the
effect of the ACH debit and commercial check posting rule proposals on
credit unions and small institutions.\22\ The
[[Page 72115]]
commenters were supportive of the proposals' intent but believed that
credit unions and smaller institutions might be disproportionately
affected and the proposals could lead to more-frequent and larger
daylight overdrafts and associated fees. Given the concerns raised by
commenters related to these types of institutions, the Board performed
additional analysis on the effect of the combined ACH debit and
commercial check proposals on these institutions based on second-
quarter 2013 payment data, consistent with the 2013 proposal. Of the
approximately 3,500 master accounts maintained by institutions that
settle ACH and commercial check activity, almost 800 (22 percent) are
maintained by natural person credit unions. The combined posting rule
proposals would, on average, reduce account balances held in Federal
Reserve accounts at 8:30 a.m. for 94 percent of these institutions. Out
of those credit unions that would experience lower balances, only 1
credit union would incur higher daylight overdraft fees as a result of
the proposals, and this credit union was already incurring fees under
the current posting rules. The average increase in fees over the
quarter under the proposed posting rules would be $132 per reserve
maintenance period.\23\ To avoid fee increases, this credit union could
pledge on average $7 million of additional collateral.\24\
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\22\ Commenters were the Credit Union National Association,
Georgia Credit Union League, Missouri Credit Union Association,
National Association of Federal Credit Unions, and Midwest
Independent Bank.
\23\ The average calculation includes all reserve maintenance
periods in the quarter.
\24\ The average calculation only includes reserve maintenance
periods for which the credit union required (additional) collateral.
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Excluding natural person credit unions, an additional 2,500 master
accounts of the approximately 3,500 master accounts maintained by
institutions that settle ACH and commercial check activity are
maintained by institutions with assets of less than $10 billion. The
combined posting rule proposals would reduce, on average, account
balances held in Federal Reserve accounts at 8:30 a.m. for 95 percent
of these institutions. Out of those small institutions that would
experience lower balances, approximately 1 percent, only 25
institutions, would incur higher fees as a result of the proposals.
More than one-third of the 25 institutions were already incurring fees
under the current posting rules, and the average increase in fees over
the quarter under the proposed posting rules would be $66 per reserve
maintenance period. To avoid fee increases, these 25 institutions could
pledge on average $10 million of (additional) collateral.
The Board recognizes that many institutions are holding higher
balances in their Federal Reserve accounts today, and although second-
quarter 2013 payment data indicate that only a very limited number of
credit unions and institutions with assets less than $10 billion would
incur higher fees under the proposal, over time, more of these
institutions may need to alter their account management in response to
the posting rule changes. Nevertheless, the Board believes that
institutions have the tools to mitigate any adverse impact. For each
two-week reserve maintenance period, institutions receive a $150 fee
waiver, which is intended to reduce the burden on institutions that
incur a small amount of uncollateralized daylight overdrafts. Many
institutions have considerable room for additional daylight overdrafts
under the waiver. In addition, institutions could post (additional)
collateral, hold higher balances overnight, or arrange early morning
funding. Interest on balances in Federal Reserve accounts would help
compensate those institutions that hold higher balances overnight in
their Federal Reserve accounts.
Effect on Institutions Ineligible for Access to Intraday Credit
One commenter, representing the interests of five Federal Home Loan
Banks without regular access to the discount window and thus without
access to intraday credit under the PSR policy because of their
classification as government-sponsored enterprises, expressed concern
that the proposed posting rule for ACH debit transactions would be
excessively burdensome for institutions ineligible for access to
intraday credit.\25\ The commenter believed that, in addition to
account management changes necessary to avoid incurring daylight
overdrafts, such as holding higher balances overnight or finding
alternative liquidity sources, the proposal might require these
institutions to reduce their income-generating investments of overnight
funds. The commenter also believed that, if adopted, the new posting
rule for ACH debit transactions might cause institutions ineligible for
access to intraday credit to re-evaluate the provision of ACH services
to their customers and the fees associated with ACH services. The Board
acknowledges that institutions ineligible for access to intraday credit
may face additional challenges as a result of the proposed posting rule
for ACH debit transactions. Of the 26 institutions ineligible to incur
daylight overdrafts that participate in FedACH, 22 on average would
experience lower balances at 8:30 a.m. under the proposed posting rule
for ACH debit transactions. Only 4 of these 22 institutions, however,
would incur daylight overdrafts according to the Board's analysis of
second-quarter 2013 payment data. The average maximum overdrafts
incurred by these 4 institutions over the quarter analyzed ranged from
just under $100,000 to slightly below $100 million, with an average of
$33 million across the 4 institutions. These institutions would need to
arrange early-morning funding or hold higher balances overnight based
on expected settlement of ACH activity.\26\ The Board understands that
there may be costs associated with these actions, and institutions
would need to weigh the costs and benefits of their account-management
options. In addition, the Board acknowledges that some institutions
that would experience lower balances might also need to manage their
Federal Reserve accounts more closely to avoid daylight overdrafts
under the proposed posting rule for ACH debit transactions.
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\25\ Edge and agreement corporations, bankers' banks that have
not waived their exemption from reserve requirements, limited-
purpose trust companies, government-sponsored enterprises including
Federal Home Loan Banks (FHLBs), and international organizations do
not have regular access to the discount window and are not permitted
to incur daylight overdrafts in their Federal Reserve accounts.
Voluntary collateralization of daylight overdrafts and the $150 fee
waiver are not available to these institutions.
\26\ Only one of the four institutions is eligible to earn
interest on its Federal Reserve account balance.
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A limited number of institutions that are ineligible for access to
intraday credit may need to manage their Federal Reserve accounts to
avoid daylight overdrafts as a result of the earlier posting time for
ACH debit transfers. The Board believes that these institutions can
reasonably manage their Federal Reserve accounts for activity settling
at 8:30 a.m. given the availability of Fedwire Funds beginning at 9:00
p.m. the previous calendar day. The Board believes that the associated
burden of closer account management by a small number of institutions
is outweighed by the benefits of the earlier posting time discussed
earlier, including the long-run efficiency of the payment system.
Competitive Disparity Between Reserve Bank and Private-Sector Services
In response to the Board's ACH debit and commercial check posting
rule proposals, The Clearing House (TCH), which owns EPN, was
supportive of the Board's intent to align and modernize the posting
rules but expressed several
[[Page 72116]]
short-term and long-term competitive disparity concerns. Specifically,
TCH was concerned that the posting rules might give the Reserve Banks
an unfair advantage over private-sector clearing and settlement systems
as a result of underlying legal differences and the limited settlement
hours of NSS. TCH also stated that in the long run, the Board should
ensure that all processes related to the posting and settlement of
Reserve Bank priced services do not provide an advantage to Reserve
Bank priced services over those of other clearing and settlement
systems. TCH stated that, in the short-term, the posting rules should
avoid disrupting the settlement of clearing and settlement systems,
specifically EPN's 8:30 a.m. settlement of ACH transactions over NSS.
Two additional commenters, U.S. Bank and NACHA, endorsed and emphasized
the importance of addressing TCH's concerns related to the proposed
posting rules for ACH debit and commercial check transactions.
Reserve Bank priced services settle transactions in participants'
Federal Reserve accounts through direct entries to the Federal
Reserve's accounting system whereas private-sector clearing and
settlement systems typically use Fedwire Funds, ACH, or NSS to settle
transactions in participants' Federal Reserve accounts. The Board has
traditionally encouraged the use of NSS for multilateral settlement
arrangements to mitigate counterparty credit risk. The establishment of
posting rules outside of the NSS operating day could potentially create
competitive disparities between Reserve Bank and private-sector
clearing and settlement systems. The posting rules proposed for ACH
debit and commercial check transactions occur within the NSS file
submission window, with the exception of the final posting time for
commercial check transactions at 5:30 p.m. and the posting of a limited
number of check debit and small-dollar credit corrections and
adjustments after the close of Fedwire. The Reserve Banks will extend
the NSS file submission window until 5:30 p.m. beginning in January
2015. In regard to the posting of debit corrections and adjustments
after the close of Fedwire Funds, such late posting ensures that an
institution could not receive a debit correction or adjustment before
the associated transaction posted. Given the minimal occurrence of
large-value check corrections and adjustments and the low value of
other check corrections and adjustments, the Board does not believe
posting these transactions after the close of Fedwire creates a
significant competitive disparity between Reserve Bank and private-
sector service providers.\27\
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\27\ In addition to debit corrections and adjustments, small-
dollar credit corrections and adjustments also post after the close
of the Fedwire Funds Service.
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Additionally, TCH was concerned that the Reserve Banks' priced
services personnel could view participants' Federal Reserve account
balances, daylight overdraft capacity, and placement on the real-time
monitor and use that information to restrict transactions or payment
services as a means of managing potential settlement failures.\28\
Although the Reserve Banks' priced services personnel may have the
ability to view account balances in the normal course of business
operations, they do not have access to daylight overdraft capacity or
risk control information. The Reserve Banks, like other clearing and
settlement systems, use a range of risk-management tools that may
include requiring minimum balances and collateral to manage the
inherent risk of providing services, but Reserve Bank priced services
personnel do not influence the application of these controls to be able
to affect the outcome of settlement and do not have the ability to
apply such controls.\29\
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\28\ For the limited number of institutions that may expose the
Federal Reserve and other payment system participants to risk of
loss, the Reserve Banks have implemented tools, including the
Account Balance Monitoring System (ABMS), which can monitor
institutions' payment activity in real time. ABMS verifies that
institutions have sufficient balances to fund their Fedwire Funds,
NSS, and certain ACH credit transactions as these payment files are
submitted and processed. ABMS may reject these transactions if there
are insufficient funds to cover the associated payments, regardless
of whether the payment files are processed by the Reserve Banks or
submitted by private-sector clearing and settlement systems through
NSS.
Institutions that are monitored in real time must fund the total
amount of their commercial ACH credit originations in order for the
transactions to be processed. If the Federal Reserve receives
commercial ACH credit transactions from institutions monitored in
real time after the scheduled close of the Fedwire Funds Service,
these transactions are currently processed at 12:30 a.m. the next
business day, or by the ACH deposit deadline, whichever is earlier.
ABMS provides intraday account information to the Reserve Banks and
institutions and is used primarily to give authorized Reserve Bank
personnel a mechanism to control and monitor account activity for
selected institutions. For more information on ACH transaction
processing, refer to the ``ACH Settlement Day Finality Guide''
available through the Federal Reserve Financial Services Web site at
http://www.frbservices.org.
\29\ The Federal Reserve's ``Standards Related to Priced-Service
Activities of the Federal Reserve Banks'' states that ``No Reserve
Bank personnel with responsibility for priced services, unless
acting in the capacity of president or first vice president, will
also be responsible for monetary policy, bank supervision, or
lending areas. Priced-service personnel will not make policy
decisions affecting monetary policy, bank supervision, or lending
matters.'' http://www.federalreserve.gov/paymentsystems/pfs_standards.htm.
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TCH encouraged the Board to ensure that, in the long run, all
processes related to the posting and settlement for Reserve Bank priced
services more broadly do not provide an advantage to the Reserve Banks
over the private-sector clearing and settlement systems as a result of
legal or settlement differences between providers. In the normal
course, the Board will continue to assess Reserve Bank priced service
proposals for new products, pricing, or posting rules to determine if
any competitive advantage is derived from legal differences. In the
case of settlement, the Board believes that potential competitive
disparities can be addressed by expanding NSS operating hours to
encompass more of the Fedwire Funds day. Private-sector clearing and
settlement systems would then generally have the ability if needed to
settle transactions in participants' Federal Reserve accounts over
similar hours as Reserve Bank priced services.\30\
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\30\ Commercial check debit and small-dollar credit corrections
and adjustments post after the close of Fedwire. Given the minimal
occurrence of large-value check corrections and adjustments and the
low value of other check corrections and adjustments, the Board does
not believe posting these transactions after the close of Fedwire
provides a competitive advantage to the Reserve Bank priced
services.
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In the short run, TCH also requested that the Board delay the
posting of ACH debit transactions until after 8:30 a.m. to avoid
potentially disrupting EPN's 8:30 a.m. settlement over NSS.\31\ TCH
believed that posting FedACH debit transactions at 8:30 a.m. could
lower EPN participants' Federal Reserve account balances and increase
the likelihood that a participant would have insufficient funds to
settle its activity over EPN. The Board believes there are several
factors that minimize the likelihood of such an outcome. The posting of
ACH debit and credit transactions simultaneously at 8:30 a.m. may
result in an increase in balances held by institutions that are large
originators of ACH debit transactions; many of the largest ACH debit
originators are EPN customers. The posting-rule change benefits not
only FedACH participants that originate debit transactions but also EPN
[[Page 72117]]
customers that originate debit transactions destined to FedACH
customers, which settle according to the Board's posting rules.
Institutions currently hold high balances, and most have access to
daylight overdrafts, with total daylight overdraft capacity calculated
as multiples of capital for healthy institutions, to ensure the smooth
functioning of the payment system. Although high balances may not
remain, balances are not likely to drop precipitously in the near term,
giving institutions time to adjust account-management activity, if
needed, to ensure sufficient balances for all payment activity settling
at 8:30 a.m. In addition, the Reserve Banks debit funds to cover ACH
credit transactions for any institution on the highest level of control
under the real-time monitor at the time of file submission, not when
the payments settle under the posting rules. The Reserve Banks also
will extend the NSS file submission window from 7:30 a.m. to 5:30 p.m.,
beginning in January 2015, and are evaluating potential further
expansion of NSS hours in the future. Given these factors, the Board
continues to believe that posting ACH debit transactions at 8:30 a.m.
is the best option for the long-run safety and efficiency of the
payment system.
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\31\ TCH also requested a clarification on how FedACH debit and
credit transactions would post simultaneously at 8:30 a.m. Under the
proposed posting rules, both ACH debit and credit transactions would
be assigned the same posting time, 8:30 a.m., and post exactly at
the same time for purposes of measuring an institution's daylight
overdraft balance. Debit and credit transactions would not be netted
before posting; however, because all transactions would post exactly
at the same minute, the institution's account balance would only
change by the net of its activity.
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The Board acknowledges some of the competitive concerns expressed
by TCH and agrees with the need to have settlement options available at
the same time to avoid introducing potential competitive disparities.
In the near term, the Board believes that extending the NSS file
submission window from 7:30 a.m. to 5:30 p.m. mitigates any adverse
competitive effect of the ACH debit and commercial check posting rule
changes. In the long run, the Board believes that any competitive
disparity concerns resulting more broadly from Reserve Banks' ability
to settle transactions outside of NSS hours can be addressed by further
expanding NSS operating hours, and potentially functionality.
The Board has adopted the posting rules for ACH debit and
commercial check transactions as proposed.
Effective Dates for Posting Rule Proposals
As part of its posting rules proposals for ACH debit and commercial
check transactions, the Board proposed a six-month implementation
period before the new posting rules would become effective. Five
commenters, including four depository institution trade associations
and one government-sponsored enterprise, indicated that an effective
date six months after the publication of the final rule in the Federal
Register would allow enough time to make necessary operational
changes.\32\ One commenter, the National Association of Federal Credit
Unions, requested a one-year implementation period to allow
institutions additional time to determine if they were affected by the
proposed posting rules and, if so, to raise capital. Given commenters'
feedback, the Board is adopting an implementation period of no less
than six months as proposed, and the posting rule changes for ACH debit
and commercial check transactions will take effect on July 23, 2015.
All items scheduled to settle on this date and after will post
according to the new posting rule procedures, regardless of the date of
deposit.
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\32\ Commenters were the American Bankers Association, Credit
Union National Association, Georgia Credit Union league, Missouri
Credit Union Association, and a joint letter from five Federal Home
Loan Banks.
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Elsewhere in the Federal Register under Docket No. R-1473, the
Board also adopted necessary related changes to the Board's Regulation
J (12 CFR part 210) regarding the timing of when paying banks settle
for check transactions presented to them by the Reserve Banks effective
on July 23, 2015.
Principles for Future Posting Rules for the Reserve Banks' Same-Day ACH
Service
Two commenters, TCH and U.S. Bank, raised account-management and
competitive disparity concerns regarding the second principle proposed
by the Board for future posting rules for the Reserve Banks' same-day
ACH service. The principle stated that the Reserve Banks would not post
settlement for same-day ACH transactions between 6:30 p.m. and 8:30
a.m. the next processing day. Commenters' concerns related to the
Reserve Banks' ability to settle same-day ACH transactions until 6:30
p.m. Specifically, the commenters were concerned that posting these
transactions up to the close of the Fedwire Funds Service would not
allow sufficient time between the settlement of same-day ACH
transactions and the close of Fedwire Funds for institutions to settle
other positions amongst themselves, and that the period between 5:00
p.m. and 6:30 p.m. was outside of current NSS operating hours, putting
any future private-sector same-day ACH service providers at a potential
disadvantage relative to the Reserve Banks' service. To address this
concern, the Board has modified the second principle to read, ``The
Reserve Banks will not post settlement for same-day ACH transactions
between the close of the Reserve Banks' National Settlement Service and
8:30 a.m. the next processing day.'' The modified principle requires
that settlement post within the NSS operating day before the close of
Fedwire Funds. As a result of the modification, the third proposed
posting rule principle, which stated that the Reserve Banks will post
settlement for same-day ACH transactions exchanged with another
operator to support universal same-day ACH during the operating hours
for the Reserve Banks' NSS, is no longer needed. The Board has removed
the third principle from the final principles for establishing future
posting rules for the Reserve Banks' same-day ACH service. The revised
principles are as follows:
(1) For each same-day ACH transmission deadline, the Reserve Banks
will establish expected distribution times for the same-day ACH files.
a. The Reserve Banks will post settlement for same-day ACH debit
transactions no earlier than 15 minutes after the Reserve Banks'
expected distribution times for the associated same-day ACH file.
b. The Reserve Banks will post settlement for ACH credit and debit
transactions associated with a particular same-day ACH file
distribution time at the same time.
(2) Settlement will not post between the close of the Reserve
Banks' National Settlement Service and 8:30 a.m. on the next processing
day.
In addition, five commenters, including one commercial banking
organization, one private-sector clearing and settlement system, and
three depository institution trade organizations indicated their
preference that the Board always request comment on new same-day ACH
posting rule proposals, regardless of whether these rules conformed to
the posting rule principles.\33\ Commenters believed it was important
to request comment, given that future material considerations may
emerge that may not be addressed by the principles and any alterations
to the current same-day ACH service may require institutions to make
significant changes. The Board continues to believe that the principles
provide a reasonable gating mechanism to enable flexibility in the
evolution of same-day ACH while still constraining settlement to the
NSS operating day during core business hours. The Board expects that
[[Page 72118]]
institutions can reasonably manage their Federal Reserve accounts
during the core business day. The Board will assess each future posting
rule for same-day ACH to determine if public comment may be warranted
based on the specific circumstances and the environment at that time
and in conformance with the Board's ``Principles for Pricing of Federal
Reserve Bank Services.'' \34\ Those principles provide that that the
Board will request comment on proposed fee or service changes that
would have significant longer-run effects on the nation's payment
system.
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\33\ Commenters were U.S. Bank, TCH, Credit Union National
Association, Georgia Credit Union League, and Missouri Credit Union
Association.
\34\ The Board's ``Principles for Pricing of Federal Reserve
Bank Services'' are available at http://www.federalreserve.gov/paymentsystems/pfs_principles.htm.
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The Board has adopted the same-day ACH principles as revised
earlier, effective on December 5, 2014.
Language Clarification to Section II.G.3
The Board received no comments on its proposed language
clarification to part II of the PSR policy regarding operational
changes in the administration of the policy as it relates to U.S.
branches and agencies of FBOs. The Board has adopted the proposed
language changes to section II.G.3 of the PSR policy as proposed
effective on December 5, 2014.
IV. Additional Technical Revisions to the Posting Rules
The Board has revised the PSR policy's posting rules to conform to
the current deposit deadline for Treasury checks, postal money orders,
local Federal Reserve Bank checks, and savings bond redemptions in
separately sorted deposits, which post at 8:30 a.m. The posting rule
currently reflects a previous deposit deadline for these items at 12:01
a.m. local time or the local deposit deadline, whichever is later.\35\
Additionally, the Board has revised the posting rules to conform to the
current deposit deadline for Treasury checks, postal money orders, and
savings bond redemptions in separately sorted deposits which post at
5:00 p.m. The posting rule currently reflects a previous deposit
deadline for these items at 4:00 p.m.\36\ The Board is removing these
obsolete deposit deadline references and, in both cases, indicating
that the posting time will apply to items deposited by the latest
applicable deposit deadline preceding the posting time.
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\35\ At this time, for posting at 8:30 a.m., the electronic
deposit deadline is 5:00 a.m. the same day and the paper check
deposit deadline is 7:00 p.m. on the previous business day.
\36\ At this time, the deposit deadline is 10:00 a.m. for items
posting at 5:00 p.m.
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As the updated deposit deadlines are already in effect for the
transactions described earlier, institutions' Federal Reserve account
balances are not affected by these updates to the incorrectly stated
deposit deadlines in the posting rules. These revisions are effective
on December 5, 2014.
V. Competitive Impact Analysis
The Board conducts a competitive impact analysis when it considers
a rule or policy change that may have a substantial effect on payment
system participants, such as that being proposed for the posting of ACH
debit and commercial check transactions. Specifically, the Board
determines whether there would be a direct and material adverse effect
on the ability of other service providers to compete with the Federal
Reserve due to differing legal powers or due to the Federal Reserve's
dominant market position deriving from such legal differences.\37\ The
Board believes that there are no adverse effects resulting from the
changes due to legal differences.
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\37\ Federal Reserve Regulatory Service, 7-145.2.
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Shifting the posting of ACH debit transactions to 8:30 a.m. brings
the settlement of ACH debit transactions processed by the Reserve
Banks' FedACH service in line with the private-sector ACH operator,
EPN. The posting-rule change benefits not only FedACH participants that
originate debit transactions but also EPN customers that originate
debit transactions destined to FedACH customers, which settle according
to the Board's posting rules. The Board also believes that the
implementation window will provide ample time for institutions to make
account-management changes, if any.
Under Regulation J, the Reserve Banks have the legal ability to
obtain same-day settlement for checks they present before the paying
bank's banking day cutoff hour through ``auto-charge,'' that is, a
direct debit to the Federal Reserve account of the paying bank or its
correspondent settlement agent.\38\ Under the amendments to Regulation
J explained elsewhere in this Federal Register, the Reserve Banks will
have the right to debit the account of the paying bank or its
correspondent settlement agent on the next clock hour or half-hour that
is at least one half-hour after presentment. In contrast, when a
private-sector bank presents a paper check by 8:00 a.m. for same-day
settlement, Regulation CC requires the paying bank to settle for the
check by sending a Fedwire Funds transfer to the presenting bank by the
close of Fedwire (or by another agreed upon method).\39\ Thus, Reserve
Banks may present checks later in the day for same-day settlement than
private-sector banks. In addition, Reserve Banks may obtain settlement
earlier in the day than private-sector collecting banks and, in turn,
may pass credits for deposited checks earlier in the day without
incurring significant intraday float.
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\38\ 12 CFR 210.9(b)(1) and (b)(5).
\39\ 12 CFR 229.36(f)(2).
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In March 1998, the Board requested comment on whether the legal
differences between rights of the Reserve Banks and the private-sector
presenting banks provided the Reserve Banks with a competitive
advantage and whether the Board should take action to reduce the
differences. Commenters generally concluded that the costs of further
changes outweighed any advantage of the Reserve Banks.\40\ In
particular, commenters noted the efficiency of the Reserve Bank's auto-
charge process for paying banks, and stated that moving the private-
sector presentment deadline to later in the day or eliminating the
direct debit of Federal Reserve accounts for check presentments would
result in higher costs to paying banks and their business customers in
terms of account management, settlement funds transfer fees, and
shortened processing windows, and that those costs would outweigh the
benefits gained by presenting banks. Based on an analysis of the
comments, the Board took no further action.
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\40\ The request for comment and the subsequent notice of the
Board's decision can be found, respectively, at 63 FR 12700 (March
16, 1998) and 63 FR 68701 (December 14, 1998).
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For the vast majority of checks presented by private-sector banks
today, which are presented in electronic form, settlement occurs as
agreed between the presenting bank and paying bank. Banks may
determine, as part of the agreement between the presenting bank and
paying bank, the time at which settlement for checks is required to be
funded. Furthermore, for collecting banks and paying banks that opt to
use a check clearinghouse, the clearinghouses have the option to use
NSS to effect settlement of checks or may settle by directing their
members to initiate funds transfers over the Reserve Banks' Fedwire
Funds Service. Beginning in January 2015, the NSS file submission
window will be 7:30 a.m. to 5:30 p.m. Fedwire Funds operating hours
begin at 9:00 p.m. the previous calendar day and end at 6:30 p.m. As
adopted in this Federal Register document, effective on July 23, 2015,
the Reserve Banks will settle commercial check transactions at
[[Page 72119]]
8:30 a.m., 1:00 p.m., and 5:30 p.m. and debits from corrections and
adjustments amounting to $1 million or more will settle after the close
of Fedwire Funds Service. A limited number of commercial check debit
and small-dollar credit corrections and adjustments post after the
close of Fedwire. Such late posting ensures that institutions only
benefit intraday from detected processing errors and that an
institution could not receive a debit correction or adjustment before
the associated check transaction posted. Given the minimal occurrence
of large-value check corrections and adjustments and the low value of
other check corrections and adjustments, the Board does not believe
posting these transactions after the close of Fedwire creates a direct
and material competitive disparity between Reserve Bank and private-
sector service providers.\41\
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\41\ In addition to debit corrections and adjustments, small-
dollar credit corrections and adjustments also post after the close
of Fedwire Funds.
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Under the adopted posting rules, the bulk of the Reserve Banks'
postings of credits to depositing banks and debits to paying banks for
commercial check transactions will shift to earlier in the day. The
value of checks a bank sends to the Reserve Banks could be higher or
lower than the value it receives from the Reserve Banks. As a result,
the earlier posting of commercial check transactions may be viewed as
more or less attractive, depending on whether the value of an
institution's check credits is higher or lower than the value of its
check debits. Further, private-sector banks can achieve improvements
similar to those provided by the proposed changes through private
agreements among participants, as well as the use of the NSS.
Given the factors discussed earlier, the Board does not believe
that the changes to the posting rules would have a direct and material
adverse effect on other service providers to compete effectively with
Reserve Banks in providing similar services.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR part 1320 appendix A.1), the Board reviewed the PSR policy
changes it is considering under the authority delegated to the Board by
the Office of Management and Budget. No collection of information
pursuant to the Paperwork Reduction Act are contained in the policy
statement.
VII. Federal Reserve Policy on Payment System Risk
Technical Revisions to the Posting Rules
Effective on December 5, 2014, the ``Federal Reserve Policy on
Payment System Risk'' section II.A. under the heading ``Procedures for
Measuring Daylight Overdrafts'' and the subheadings ``Post at 8:30 a.m.
eastern time'' and ``Post at 5:00 p.m. eastern time'' is amended as
follows.
Post at 8:30 a.m. eastern time:
+/- Term deposit maturities and accrued interest
+/- Government and commercial ACH credit transactions \42\
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\42\ Institutions that are monitored in real time must fund the
total amount of their commercial ACH credit originations before the
transactions are processed by the Reserve Banks. If the Federal
Reserve receives commercial ACH credit transactions from
institutions monitored in real time after the scheduled close of the
Fedwire Funds Service, these transactions are currently processed at
12:30 a.m. the next business day, or by the ACH deposit deadline,
whichever is earlier. The Account Balance Monitoring System provides
intraday account information to the Reserve Banks and institutions
and is used primarily to give authorized Reserve Bank personnel a
mechanism to control and monitor account activity for selected
institutions. For more information on ACH transaction processing,
refer to the ACH Settlement Day Finality Guide available through the
Federal Reserve Financial Services Web site at http://www.frbservices.org.
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+ Treasury checks, postal money orders, local Federal Reserve Bank
checks, and savings bond redemptions in separately sorted deposits;
these items must be deposited by the latest applicable deposit deadline
preceding the posting time.
+ Advance-notice Treasury investments
- Penalty assessments for tax payments from the Treasury Investment
Program (TIP).\43\
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\43\ The Reserve Banks will identify and notify institutions
with Treasury-authorized penalties on Thursdays. In the event that
Thursday is a holiday, the Reserve Banks will identify and notify
institutions with Treasury-authorized penalties on the following
business day. Penalties will then be posted on the business day
following notification.
---------------------------------------------------------------------------
Post at 5:00 p.m. eastern time:
+/- FedACH SameDay Service transactions
+/- Immediate settlement ACH transactions; these transactions include
ACH return items and check-truncation items.
+ Treasury checks, postal money orders, and savings bond redemptions in
separately sorted deposits; these items must be deposited by the latest
applicable deposit deadline preceding the posting time.
+ Local Federal Reserve Bank checks; these items must be presented
before 3:00 p.m. eastern time
Revisions to Section II.G.3 of the PSR Policy
Effective December 5, 2014, section II.G.3 of the ``Federal Reserve
Policy on Payment System Risk'' is amended to clarify the Reserve
Banks' administration of the policy for U.S. branches and agencies of
foreign banking organizations as follows.
3. Multi-District Institutions
An institution maintaining merger-transition accounts or an Edge or
agreement corporation that accesses Fedwire through master accounts in
more than one Federal Reserve District is expected to manage its
accounts so that the total daylight overdraft position across all
accounts does not exceed the institution's net debit cap. One Reserve
Bank will act as the administrative Reserve Bank and will have overall
risk-management responsibilities for an institution maintaining master
accounts in more than one Federal Reserve District. For domestic
institutions that have branches in multiple Federal Reserve Districts,
the administrative Reserve Bank generally will be the Reserve Bank
where the head office of the bank is located.
U.S. branches and agencies of the same foreign bank (also referred
to as an FBO family) are assigned one net debit cap per FBO family. FBO
families that access Fedwire through master accounts in more than one
Federal Reserve District are expected to manage their accounts so that
the daylight overdraft position in each account does not exceed the
capacity allocated to that account from the FBO family's net debit cap.
The administrative Reserve Bank generally is the Reserve Bank that
exercises the Federal Reserve's oversight responsibilities under the
International Banking Act.\44\ The administrative Reserve Bank, in
consultation with the management of the foreign bank's U.S. operations
and with Reserve Banks in whose territory other U.S. agencies or
branches of the same foreign bank are located, may recommend that these
agencies and branches not be permitted to incur overdrafts in Federal
Reserve accounts. Alternatively, the administrative Reserve Bank, after
similar consultation, may recommend that all or part of the foreign
family's net debit cap be allocated to the Federal Reserve accounts of
agencies or branches that are located outside of the administrative
Reserve Bank's District; in this case, the Reserve Bank in whose
Districts those agencies or branches are
[[Page 72120]]
located will be responsible for administering all or part of this
policy.\45\
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\44\ 12 U.S.C. 3101-3108.
\45\ As in the case of Edge and agreement corporations and their
branches, with the approval of the designated administrative Reserve
Bank, a second Reserve Bank may assume the responsibility for
administering this policy regarding particular foreign branch and
agency families. This would often be the case when the payments
activity and national administrative office of the foreign branch
and agency family is located in one District, while the oversight
responsibility under the International Banking Act is in another
District. If a second Reserve Bank assumes management
responsibility, monitoring data will be forwarded to the designated
administrator for use in the supervisory process.
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Changes to the Posting Rules for ACH Debit and Commercial Check
Transactions
Effective on July 23, 2015, the ``Federal Reserve Policy on Payment
System Risk'' section II.A. under the heading ``Procedures for
Measuring Daylight Overdrafts'' is amended as follows.
Procedures for Measuring Daylight Overdrafts \46\
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\46\ This schedule of posting rules does not affect the
overdraft restrictions and overdraft-measurement provisions for
nonbank banks established by the Competitive Equality Banking Act of
1987 and the Board's Regulation Y (12 CFR 225.52).
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Opening Balance (Previous Day's Closing Balance)
Post at 8:30 a.m. eastern time:
+/- Term deposit maturities and accrued interest
+/- Government and commercial ACH transactions \47\
---------------------------------------------------------------------------
\47\ Institutions that are monitored in real time must fund the
total amount of their commercial ACH credit originations in order
for the transactions to be processed. If the Federal Reserve
receives commercial ACH credit transactions from institutions
monitored in real time after the scheduled close of the Fedwire
Funds Service, these transactions are currently processed at 12:30
a.m. the next business day, or by the ACH deposit deadline,
whichever is earlier. The Account Balance Monitoring System provides
intraday account information to the Reserve Banks and institutions
and is used primarily to give authorized Reserve Bank personnel a
mechanism to control and monitor account activity for selected
institutions. For more information on ACH transaction processing,
refer to the ACH Settlement Day Finality Guide available through the
Federal Reserve Financial Services Web site at http://www.frbservices.org.
---------------------------------------------------------------------------
+/- Commercial check transactions, including returned checks \48\
---------------------------------------------------------------------------
\48\ For the three commercial check transaction posting times,
the Reserve Banks will post credits and debits to institutions'
accounts for checks deposited and presented, respectively, at least
30 minutes before the posting time.
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+ Treasury checks, postal money orders, local Federal Reserve Bank
checks, and savings bond redemptions in separately sorted deposits;
these items must be deposited by the latest applicable deposit deadline
preceding the posting time.
+ Advance-notice Treasury investments
- Penalty assessments for tax payments from the Treasury Investment
Program (TIP).\49\
---------------------------------------------------------------------------
\49\ The Reserve Banks will identify and notify institutions
with Treasury-authorized penalties on Thursdays. In the event that
Thursday is a holiday, the Reserve Banks will identify and notify
institutions with Treasury-authorized penalties on the following
business day. Penalties will then be posted on the business day
following notification.
---------------------------------------------------------------------------
Post at 8:30 a.m. eastern time and hourly, on the half-hour,
thereafter:
+/- Main account administrative investment or withdrawal from TIP
+/- Special Direct Investment (SDI) administrative investment or
withdrawal from TIP
+ 31 CFR part 202 account deposits from TIP
+ Credit corrections amounting to $1 million or more \50\
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\50\ Corrections are account entries made to correct
discrepancies detected by a Reserve Bank during the initial
processing of checks.
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+ Credit adjustments amounting to $1 million or more \51\
---------------------------------------------------------------------------
\51\ Adjustments are account entries made to correct
discrepancies detected by an institution after entries have posted
to Federal Reserve accounts.
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- Uninvested paper tax (PATAX) deposits from TIP
- Main account balance limit withdrawals from TIP
- Collateral deficiency withdrawals from TIP
- 31 CFR part 202 deficiency withdrawals from TIP
Post at 11:00 a.m. eastern time and hourly thereafter:
+ Currency and coin deposits
Post at 1:00 p.m. eastern time:
+/- Commercial check transactions, including returned checks
Post at 5:30 p.m. eastern time:
+/- FedACH SameDay Service return transactions.
+/- Commercial check transactions, including returned checks
Post after the close of Fedwire Funds Service:
+/- All other transactions. These transactions include the following:
currency and coin shipments; noncash collection; term-deposit
settlements; Federal Reserve Bank checks presented after 3:00 p.m.
eastern time but before 3:00 p.m. local time; foreign check
transactions; small-dollar credit corrections and adjustments; and all
debit corrections and adjustments. Discount-window loans and repayments
are normally posted after the close of Fedwire as well; however, in
unusual circumstances a discount window loan may be posted earlier in
the day with repayment 24 hours later, or a loan may be repaid before
it would otherwise become due.
Equals:
Closing Balance.
* * * * *
Dated: December 1, 2014.
By order of the Board of Governors of the Federal Reserve
System,
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-28664 Filed 12-4-14; 8:45 am]
BILLING CODE 6210-01-P