Modifications to the Federal Reserve Banks' National Settlement Service and Fedwire® Funds Service To Support Enhancements to the Same-Day ACH Service and Corresponding Changes to the Federal Reserve Policy on Payment System Risk, 71940-71946 [2019-28002]
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Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
Reserve Bank indicated. The
applications will also be available for
inspection at the offices of the Board of
Governors. Interested persons may
express their views in writing on the
standards enumerated in the BHC Act
(12 U.S.C. 1842(c)).
Comments regarding each of these
applications must be received at the
Reserve Bank indicated or the offices of
the Board of Governors, Ann E.
Misback, Secretary of the Board, 20th
Street and Constitution Avenue NW,
Washington, DC 20551–0001, not later
than January 23, 2020.
A. Federal Reserve Bank of St. Louis
(David L. Hubbard, Senior Manager)
P.O. Box 442, St. Louis, Missouri
63166–2034. Comments can also be sent
electronically to
Comments.applications@stls.frb.org:
1. First Horizon National Corporation,
Memphis, Tennessee; to acquire
IBERIABANK Corporation and thereby
indirectly acquire IBERIABANK, both of
Lafayette, Louisiana.
B. Federal Reserve Bank of New York
(Ivan Hurwitz, Senior Vice President) 33
Liberty Street, New York, New York
10045–0001. Comments can also be sent
electronically to
Comments.applications@ny.frb.org:
1. Barclays US Holdings Limited, New
York, New York; a company organized
under the laws of the Cayman Islands,
to become a bank holding company by
acquiring Barclays US LLC, also of New
York, New York, and thereby indirectly
acquire Barclays Bank Delaware,
Wilmington, Delaware. In addition,
Barclays PLC and Barclays Bank PLC,
both of London, England, to retain
Barclays US Holdings Limited and
thereby indirectly acquire Barclays US
LLC and Barclays Bank Delaware.
Board of Governors of the Federal Reserve
System, December 20, 2019.
Michele Taylor Fennell,
Assistant Secretary of the Board.
[FR Doc. 2019–28000 Filed 12–27–19; 8:45 am]
BILLING CODE P
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Change in Bank Control Notices;
Acquisitions of Shares of a Bank or
Bank Holding Company
The notificants listed below have
applied under the Change in Bank
Control Act (Act) (12 U.S.C. 1817(j)) and
§ 225.41 of the Board’s Regulation Y (12
CFR 225.41) to acquire shares of a bank
or bank holding company. The factors
that are considered in acting on the
notices are set forth in paragraph 7 of
the Act (12 U.S.C. 1817(j)(7)).
20:00 Dec 27, 2019
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Board of Governors of the Federal Reserve
System, December 20, 2019.
Michele Taylor Fennell,
Assistant Secretary of the Board.
[FR Doc. 2019–27999 Filed 12–27–19; 8:45 am]
BILLING CODE P
FEDERAL RESERVE SYSTEM
[Docket No. OP–1692]
Modifications to the Federal Reserve
Banks’ National Settlement Service
and Fedwire® Funds Service To
Support Enhancements to the SameDay ACH Service and Corresponding
Changes to the Federal Reserve Policy
on Payment System Risk
Board of Governors of the
Federal Reserve System.
ACTION: Notice.
AGENCY:
The Board of Governors
(Board) has approved modifications to
the Federal Reserve Banks’ (Reserve
Banks) payment services to facilitate
adoption of a later same-day automated
clearinghouse (ACH) processing and
settlement window. Specifically, the
Reserve Banks will extend the daily
operating hours of the National
Settlement Service (NSS) and the
Fedwire® Funds Service. To mitigate
the risk that these modified hours will
cause more frequent delays to the 9:00
p.m. eastern time (ET) reopening of the
Fedwire Funds Service, the Reserve
SUMMARY:
FEDERAL RESERVE SYSTEM
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The applications listed below, as well
as other related filings required by the
Board, if any, are available for
immediate inspection at the Federal
Reserve Bank indicated. The
applications will also be available for
inspection at the offices of the Board of
Governors. Interested persons may
express their views in writing on the
standards enumerated in paragraph 7 of
the Act.
Comments regarding each of these
applications must be received at the
Reserve Bank indicated or the offices of
the Board of Governors, Ann E.
Misback, Secretary of the Board, 20th
and Constitution Avenue NW,
Washington, DC 20551–0001, not later
than January 8, 2020.
A. Federal Reserve Bank of Kansas
City (Dennis Denney, Assistant Vice
President) 1 Memorial Drive, Kansas
City, Missouri 64198–0001:
1. Susan Chapman Plumb,
Tahlequah, Oklahoma; to retain voting
shares of Grandview Bankshares, Inc.,
and thereby indirectly retain voting
shares of Cherokee County Bancshares,
Inc. and Bank of Cherokee County, all
of Hulbert, Oklahoma.
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Banks will modify the practice of
maintaining a 2-hour window between
the closing and reopening of the
Fedwire Funds Service to maintain only
a 90-minute window, and will increase
the $1 billion value threshold for
extending the closing of the Fedwire
Funds Service to $3 billion. Finally, the
Board has approved corresponding
changes to the Federal Reserve Policy
on Payment System Risk (PSR policy).
DATES: Implementation date: March 19,
2021.
FOR FURTHER INFORMATION CONTACT:
Michael Ballard, Senior Financial
Institution and Policy Analyst (202–
452–2384); Ann Sun, Lead Financial
Institution and Policy Analyst (202–
912–7938), Division of Reserve Bank
Operations and Payment Systems; or
Evan H. Winerman, Senior Counsel
(202–872–7578), Legal Division; for
users of Telecommunication Devices for
the Deaf (TDD) only, contact (202–263–
4869).
SUPPLEMENTARY INFORMATION:
I. Background
On May 16, 2019, the Board
published a Federal Register notice
(Notice) seeking public comment on
modifications to the Reserve Banks’
payment services to facilitate adoption
of a later same-day ACH processing and
settlement window.1 As described more
fully in the Notice, the ACH network is
made up of two network operators: The
Reserve Banks, which operate the
FedACH® service, and The Clearing
House Payments Company L.L.C. (TCH),
which operates the Electronic Payments
Network (EPN) service.2 The ACH
network is governed by the rules of the
ACH operators, which generally
incorporate the Nacha Operating Rules
1 84 FR 22123 (May 16, 2019). In addition, the
Board has announced that the Federal Reserve
intends to explore further expanded hours for NSS
and the Fedwire Funds Service, up to 24 × 7 × 365,
to support a wide range of payment activities,
including liquidity management in private-sector
real-time gross settlement services for faster
payments. See 84 FR 39297 (August 9, 2019). The
Board is analyzing the risk, operational, and policy
implications of further expanding operating hours
of NSS and the Fedwire Funds Service.
2 The Reserve Banks settle all ACH transactions
that are originated or received by FedACH
customers, including transactions that are
exchanged between the two operators. TCH
arranges settlement for only those ACH transactions
that are originated and received by EPN customers
(that is, transactions within the EPN network). The
Reserve Banks settle ACH transactions by posting
credits and debits to the sending and receiving
banks’ Federal Reserve accounts at the settlement
time and date provided in the FedACH processing
schedule. TCH uses NSS to settle its in-network
ACH transactions in participants’ Federal Reserve
accounts, typically sending NSS files at the same
times the Reserve Banks settle FedACH
transactions.
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Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
and Guidelines adopted by Nacha’s
members.3 Nacha amended its operating
rules on September 13, 2018, to
implement a later same-day ACH
window.4 The amended operating rules,
however, are contingent on changes to
Reserve Bank services that would enable
TCH, the private-sector ACH operator,
using NSS, to settle transactions
between its customers during this later
same-day ACH window.5
Currently, there are three ACH
processing and settlement windows:
One next-day window and two sameday windows. The two current sameday windows consist of (1) a morning
window with a submission deadline at
10:30 a.m. ET and settlement at 1:00
p.m. ET and (2) an afternoon window
with a submission deadline at 2:45 p.m.
ET and settlement at 5:00 p.m. ET.6 The
later same-day ACH processing and
settlement window outlined in the
Notice would have an afternoon
submission deadline of 4:45 p.m. ET
and settlement at 6:00 p.m. ET, which
is later than the current operating hours
of NSS.7
The Board requested comment on (1)
extending the closing time of NSS by
one hour, from 5:30 p.m. ET to 6:30 p.m.
ET, (2) extending the cutoff time for
Reserve Bank account holders to initiate
transfers on behalf of third parties via
the Fedwire Funds Service (Fedwire
Funds third-party cutoff) by 45 minutes,
71941
from 6:00 p.m. ET to 6:45 p.m. ET, and
(3) extending the closing of the Fedwire
Funds Service by 30 minutes, from 6:30
p.m. ET to 7:00 p.m. ET. These
proposed changes were intended to
allow sufficient time for depository
institutions and their customers to
reposition balances and manage
liquidity between the closing of NSS,
the Fedwire Funds third-party cutoff,
and the closing of the Fedwire Funds
Service. Table 1 summarizes the
proposed changes to closings and
cutoffs for Reserve Bank services, while
Table 2 illustrates the proposed changes
in times between service closings and
cutoffs.
TABLE 1—PROPOSED CHANGES TO CLOSINGS AND CUTOFFS FOR RESERVE BANK SERVICES
Current closings/cutoffs
NSS closing ................................................................
Fedwire Funds third-party cutoff .................................
Fedwire Funds Service closing ...................................
Proposed closings/cutoffs
5:30 p.m. ET ..............................................................
6:00 p.m. ET ..............................................................
6:30 p.m. ET ..............................................................
6:30 p.m. ET.
6:45 p.m. ET.
7:00 p.m. ET.
TABLE 2—PROPOSED CHANGES IN TIMES BETWEEN SERVICE CLOSINGS AND CUTOFFS
Current time
between
closings/cutoffs
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Time between closing of NSS and Fedwire Funds third-party cutoff .....................................................
Time between Fedwire Funds third-party cutoff and closing of Fedwire Funds Service .......................
Time between closing of NSS and closing of Fedwire Funds Service ...................................................
Funds Service (for the next fundstransfer business day) and (2) the
Reserve Banks’ dollar value threshold
for providing extensions to the Fedwire
Funds Service hours. Finally, the Board
requested comment on corresponding
changes to the PSR policy.
The Board requested comment on
how depository institutions and their
customers might use a third same-day
ACH window and the extended NSS/
Fedwire Funds Service hours. The
Board also requested comment on
whether reducing the time between
service closings and cutoffs would
increase risks and costs for depository
institutions and their customers.
Additionally, the Board requested
comment on certain operational and
policy changes to reduce the risk that
the proposed changes to service closings
and cutoffs would increase the
frequency of delays to the reopening of
the Fedwire Funds Service. Specifically,
the Board requested comment on
modifying (1) the practice of
maintaining a 2-hour window between
the closing of the Fedwire Funds
Service (for one funds-transfer business
day) and the reopening of the Fedwire
The Board received 77 comments
from small and midsize banks, large
banks, banking trade associations, end
users and associations representing end
users, payment trade associations
(including national and regional
payment associations), third-party
processors and service providers, TCH,
Nacha, and other interested parties.8
Sixty-five commenters generally
supported the Board’s proposed
changes, 10 commenters did not support
the proposed changes, and 2
commenters took no clear position.
3 Nacha’s membership consists of insured
financial institutions and regional payment
associations.
4 See https://www.Nacha.org/news/same-day-achwill-be-enhanced-meet-ach-end-user-needs.
5 See n.2, supra.
6 During each window, the ACH operators process
the transactions received by the submission
deadline and either distribute the transactions to
the receiving depository financial institutions
(RDFIs) that are their direct customers or exchange
with each other the ACH transactions that are
destined to RDFIs that are customers of the other
operator.
7 The actual schedules and timing are determined
by each ACH operator and are not set by the Nacha
Operating Rules and Guidelines.
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II. Summary of Comments and Analysis
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30 minutes
30 minutes
60 minutes
Proposed time
between
closings/cutoffs
15 minutes.
15 minutes.
30 minutes.
A. Supporting the Third Same-Day ACH
Processing and Settlement Window
Most commenters supported a third
same-day ACH processing and
settlement window alongside the
proposed operating changes to Reserve
Banks’ payment services, emphasizing
the potential benefits to banks and
customers located outside the eastern
time zone. These commenters believed
that making same-day ACH available
during greater portions of the business
day could make the service more
attractive for time-sensitive payments,
particularly for banks and customers
located in the mountain and Pacific
time zones. These commenters also
suggested that a third same-day ACH
window may encourage more banks to
offer same-day ACH services to
customers.
8 Duplicate submissions or similar comments
from the same commenter were treated as a single
submission. Throughout this notice, the term
‘‘bank’’ will be used to refer to any type of
depository institution. Depository institutions
include commercial banks, savings banks, savings
and loan associations, and credit unions.
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B. Extending the Operating Hours of
NSS and the Fedwire Funds Service
As described above, to accommodate
a third same-day ACH window, the
Board proposed that the Reserve Banks
extend the operating hours of NSS, the
Fedwire Funds third-party cutoff, and
the operating hours of the Fedwire
Funds Service. The Board requested
comment on whether the reduction in
time between the closing of NSS, the
Fedwire Funds Service third-party
cutoff, and the closing of the Fedwire
Funds Service would pose challenges
for banks’ end-of-day processes.9
Supportive commenters generally
indicated that the changes and costs
associated with extending the operating
hours of NSS and the Fedwire Funds
Service would not be significant. While
the supportive commenters noted that
they would need to modify internal
processes and procedures, staffing, and
certain technological systems and
applications, these commenters did not
believe that these modifications would
be extensive. These commenters
indicated that they would be able to
make the necessary changes by March
19, 2021, which is Nacha’s current
effective date for implementing the later
same-day ACH window. As noted
previously, some small and mid-size
bank commenters were not supportive
of the third same-day ACH window or
the proposed changes to the cutoff and
closing times for NSS and the Fedwire
Funds Service.
Six commenters, including two large
banks, noted that the compressed endof-day timeline may increase the
frequency of requests to extend the
closing of the Fedwire Funds Service
operating day; conversely, seven
commenters, including one large bank,
stated that the compressed end-of-day
timeline would not increase the
frequency of extension requests.
The Board has approved the proposed
extensions to the operating hours of
NSS, the Fedwire Funds third-party
cutoff, and the closing of the Fedwire
Funds Service. When the Reserve Banks
implement these changes on March 19,
2021, NSS will close at 6:30 p.m. ET,
the Fedwire Funds third-party cutoff
will occur at 6:45 p.m. ET, and the
Fedwire Funds Service will close at 7:00
p.m. ET. The Reserve Banks will
monitor for any increased frequency of
extension requests resulting from this
compressed end-of-day timeline. As
described further below, the Reserve
Banks will take certain steps to reduce
the risk that extension requests will
result in more frequent delays to the
reopening of the Fedwire Funds Service.
In addition, as the Board analyzed the
changes further, it examined the
interplay between extending the
operating hours for the Fedwire Funds
Service alongside the time frame for
repositioning securities free of payment
within the Fedwire Securities Service.
Currently, the closing time for the
Fedwire Securities Service for
repositioning free of payment is 7:00
p.m. ET, 30 minutes after the close of
the Fedwire Funds Service at 6:30 p.m.
9 End-of-day cycles and processing typically
involve the reconciliation and preparation of
systems for the next cycle date as well as the
production of customer statements.
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Some commenters also noted the
benefits of extending NSS and Fedwire
Funds Service hours for reasons
unrelated to same-day ACH.
Commenters suggested that extended
NSS and Fedwire Funds Service hours
would provide further flexibility for
their customers to use these services
later in the business day. Additionally,
commenters suggested that these
changes would incrementally improve
the ability to transfer funds between
Federal Reserve accounts for a privatesector real-time gross settlement service
for faster payments.
Ten commenters did not support a
third same-day ACH window because of
potential staffing costs associated with a
longer operating day and, by extension,
did not support the proposed changes to
the cutoff and closing times for NSS and
the Fedwire Funds Service. Most of
these commenters were small and
midsize banks located in the eastern or
central time zones that would need to
modify staffing hours to cover a third
same-day ACH window. These banks
noted that they generally do not
originate same-day ACH transactions. At
the same time, 21 small and midsize
banks (many located in the Pacific time
zone) supported the proposed changes.
The Board recognizes that adding a
third same-day ACH window may
incrementally increase costs for certain
banks. The Board, however, believes
that adding a third-same day ACH
window will enhance the availability of
the same-day ACH service nationwide,
particularly for banks and customers in
the mountain and Pacific and time
zones, enabling those banks to receive
advantages similar to those already
experienced by banks in eastern or
central time zones. In addition,
supporting a third same-day ACH
window would advance the Federal
Reserve’s ongoing objective to improve
the speed and efficiency of the payment
system in the United States.
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ET.10 While the Board did not receive
any comments raising concerns related
to the timing for repositioning securities
relative to expanding the operating
hours of the Fedwire Funds Service,
Reserve Bank staff intends to engage
with Fedwire Securities Service
participants to determine, in
consultation with the Board, if a change
to the closing time for repositioning
securities free of payment in the
relevant Operating Circular would be
warranted. At this time, based on the
low amount of past usage of the
repositioning window, the Board
believes that any potential changes to
the closing time for repositioning
securities free of payment at 7:00 p.m.
ET would not have a long-run effect on
the payment system, because that period
is generally used for intraparticipant
repositioning and therefore would not
necessarily warrant public comment.
C. Reducing the Risk of More Frequent
Delays to the Reopening of the Fedwire
Funds Service
Fedwire Funds Service operating
hours currently begin at 9:00 p.m. ET on
the preceding calendar day and end at
6:30 p.m. ET, Monday through Friday.
The Reserve Banks currently strive to
maintain at least a 2-hour window
between the closing and reopening of
the Fedwire Funds Service to allow
Fedwire participants sufficient time to
complete their end-of-day cycles and
processing.11 With a change to the
closing time of the Fedwire Funds
Service from 6:30 p.m. ET to 7:00 p.m.
ET, the window between the closing
and reopening of the Fedwire Funds
Service would be reduced from 2 hours
and 30 minutes to 2 hours. Accordingly,
if the Reserve Banks maintain their
current practice of providing a 2-hour
window between the closing and
reopening of the Fedwire Funds Service,
any extension granted to the closing of
the Fedwire Funds Service would result
in the delayed reopening of the Fedwire
Funds Service for the next business
day.12
The Reserve Banks allow participants
to request extensions to the Fedwire
Funds third-party cutoff or the Fedwire
10 See Operating Circular 7, appendix B at https://
www.frbservices.org/assets/resources/rulesregulations/operating-circular-7-102917.pdf.
11 See https://www.frbservices.org/resources/
financial-services/wires/extension-guidelines.html.
See also 68 FR 28826, 28827 (May 27, 2003) (‘‘In
general, the Federal Reserve Banks will work to
maintain a two-hour interim period between the
close and open of Fedwire each business day’’).
12 For example, a 15-minute extension to the
Fedwire Funds Service closing (from 7:00 p.m. ET
to 7:15 p.m. ET) would result in a 15-minute delay
to the reopening of the Fedwire business day (from
9:00 p.m. ET to 9:15 p.m. ET).
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Funds Service closing time if, among
other things, the dollar value of delayed
transfers would exceed $1 billion.13 The
Reserve Banks also allow participants to
request extensions to the NSS closing,
although such requests are
uncommon.14 Extensions to the Fedwire
Funds third-party cutoff, the Fedwire
Funds Service closing time, or both
currently occur approximately twice per
month and, in most cases, do not affect
the reopening time of the Fedwire
Funds Service for the next business
day.15 Given the compressed end-of-day
time frame, any extension to the closing
of NSS or the Fedwire Funds third-party
cutoff will require an extension to the
Fedwire Funds Service closing time.16 If
the Reserve Banks maintain their
current practice of providing a 2-hour
window between the closing and
reopening of the Fedwire Funds Service,
any extension granted to the closing of
the Fedwire Funds Service would result
13 See Operating Circular 6, section 10.3, and
https://www.frbservices.org/resources/financialservices/wires/extension-guidelines.html.
Additionally, if the Fedwire Funds Service
experiences an operational disruption, the Reserve
Banks may extend the Fedwire Funds Service
closing time regardless of the dollar value still to
be sent.
14 Operating Circular 12, section 5.8, provides
discretion to a Reserve Bank to extend the NSS
settlement window. While extensions to the closing
of NSS are uncommon, such extensions could be
required when system outages or problems prevent
the submission or processing of NSS files.
15 Over a 43-month period from January 2016
through July 2019, the Reserve Banks granted 47
extensions to the closing of the Fedwire Funds
Service, ultimately resulting in seven delays to the
reopening of the Fedwire Funds Service. Thirtythree of these extensions were a result of extensions
granted to the Fedwire Funds third-party cutoff.
The Reserve Banks also granted 23 extensions to the
Fedwire Funds third-party cutoff that did not
require extensions to the closing of the Fedwire
Funds Service. Currently, the Reserve Banks can
provide up to a 45-minute extension to the Fedwire
Funds third-party cutoff (from 6:00 p.m. ET to 6:45
p.m. ET) without delaying the reopening of the
Fedwire Funds Service. In such circumstances, the
Reserve Banks also can provide a 30-minute
extension to the closing of Fedwire Funds Service
(from 6:30 p.m. to 7:00 p.m. ET) and still maintain
(a) a 15-minute window between the Fedwire
Funds third-party cutoff and the closing of the
Fedwire Funds Service and (b) a 2-hour window
between the closing and reopening of the Fedwire
Funds Service.
16 The Federal Reserve has long provided at least
30 minutes between the last NSS settlement and the
closing of the Fedwire Funds Service, recognizing
that ‘‘the Fedwire funds transfer service is the
primary alternative for orderly and efficient
settlement of bilateral obligations in case a
settlement arrangement is unable to complete its
multilateral settlement through NSS.’’ See 63 FR
60000, 60004 (Nov. 6, 1998). The Fedwire Funds
third-party cutoff was established to stop the flow
of customer transactions and allow financial
institutions a settlement period to conduct bank-tobank transfers to adjust master account positions
before the closing of the Fedwire Funds Service.
The current Fedwire Funds third-party cutoff of
6:00 p.m. ET was established in 1990. See 55 FR
18755, 18758 (May 4, 1990).
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in the delayed reopening of the Fedwire
Funds Service for the next business day.
Delays to the reopening of the
Fedwire Funds Service could affect
Fedwire Funds Service participants that
wish to send payment orders at the start
of the Fedwire Funds Service business
day. On average, $35 billion is settled
over the Fedwire Funds Service during
the first hour of the Fedwire Funds
Service business day (9:00 p.m. ET to
10:00 p.m. ET). Seven commenters,
including five large banks, emphasized
the importance of preserving the
consistent and regular opening of the
Fedwire Funds Service at 9:00 p.m. ET.
These commenters noted that the
CHIPS® funds-transfer system, a largevalue payment system that is owned
and operated by TCH, relies on the
Fedwire Funds Service for prefunding at
9:00 p.m. ET.17 These commenters also
noted that the 9:00 p.m. ET opening of
the Fedwire Funds Service has helped
U.S. banks remain competitive in
providing U.S. dollar (USD) payment
services to clients in the Asia-Pacific
market, consistent with the Federal
Reserve’s original rationale for opening
the Fedwire Funds Service at 9:00 p.m.
ET.18 Commenters further stated that, if
delays to the reopening of the Fedwire
Funds Service were to become more
frequent, customers in the Asia-Pacific
markets could switch to offshore USD
clearing systems or could transact in
non-USD currencies.
The Board believes it is important to
limit, if possible, the increase of delays
to the reopening of the Fedwire Funds
Service for the reasons discussed by
commenters. As described below, the
Reserve Banks will adopt certain
operational and policy changes to limit
the increase in delays to the reopening
of the Fedwire Funds Service.
17 Through October 31, 2019, CHIPS cleared and
settled nearly $1.7 trillion in domestic and
international payments on average per day. See
https://www.theclearinghouse.org/-/media/new/tch/
documents/payment-systems/chips-volume_v2.pdf.
TCH noted in a comment letter that 12 percent of
CHIPS transaction volume and 5 percent of daily
transaction value are sent to CHIPS during the first
hour of CHIPS processing, from 9:00 p.m. to 10:00
p.m. ET.
18 In May 2003, the Board approved the
expansion of the operating hours for the Fedwire
Funds Service by changing the opening of the
service from 12:30 a.m. ET to 9:00 p.m. ET on the
previous calendar day. The Federal Reserve
adopted these expanded hours in response to
industry requests for greater overlap of U.S.
wholesale payment system operating hours with
those of the Asia-Pacific markets, including
Australia, Hong Kong, Japan, and New Zealand. See
68 FR 28826, 28828 (May 27, 2003).
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71943
i. Changing the Practice of Maintaining
a 2-Hour Window Between the Closing
and Reopening of the Fedwire Funds
Service
Seventeen commenters addressed the
option of modifying the current practice
of maintaining a 2-hour window
between the closing and reopening of
the Fedwire Funds Service to allow only
a 90-minute window. Sixteen
commenters, including six large banks,
three small and midsize banks, three
payment trade associations, two banking
trade associations, TCH, and Nacha,
supported the reduction to a 90-minute
window. One commenter (a midsize
bank) did not support this option,
suggesting that a 90-minute window
may not be adequate for institutions to
perform their end-of-day processes.
While the Board recognizes that
certain banks may need to make
operational adjustments to
accommodate a 90-minute window
between the closing and reopening of
the Fedwire Funds Service, the Board
believes that reducing this window will
provide a crucial 30-minute buffer (as
exists today) for the Reserve Banks to
extend the closing of the Fedwire Funds
Service(when necessary to prevent
significant market disruptions) without
delaying the reopening of the Fedwire
Funds Service. This buffer would limit
the potential increase in delays to the
9:00 p.m. ET reopening of the Fedwire
Funds Service, which would reduce
disruptions and liquidity strains for
institutions that expect payments at 9:00
p.m. ET and shortly thereafter. The
Board has approved this modification,
which the Reserve Banks will
implement on March 19, 2021.
ii. Changing the Guidelines for
Providing Extensions to the Fedwire
Fund Service
Twenty commenters addressed the
proposed option of modifying the
guidelines for granting extensions to the
Fedwire Funds Service hours (which
have been in effect since 1997) by
increasing the dollar value threshold
from $1 billion to $5 billion.19 Nine
commenters, including four payment
trade associations, two small and
midsize banks, a large bank, a banking
trade organization, and Nacha,
supported the Board’s proposed
increase of the dollar value threshold to
$5 billion. Five commenters supported
the notion of increasing the threshold
but did not support the Board’s
proposed $5 billion threshold. Of those
commenters, two commenters
supported increasing the threshold to $2
19 One of these commenters, TCH, addressed this
option but did not take a position.
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Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
billion; one commenter supported
increasing the threshold by some
amount less than $5 billion but did not
take a position on the amount; and two
commenters proposed alternative
structures or measures for modifying the
threshold. These commenters proposed
options that involved (1) increasing the
threshold to account for inflation and
observed changes in the average daily
value of Fedwire Funds Service
transactions; (2) creating a tiered
threshold, with a lower threshold for an
initial extension and a higher threshold
for subsequent extension requests from
the same requestor on the same day; or
(3) maintaining the current threshold of
$1 billion for the first two fifteen-minute
extension requests and increasing the
threshold to $5 billion for subsequent
extensions.
Finally, five commenters did not
support increasing the threshold,
including three commenters who did
not provide a rationale for this position.
The other two commenters noted that
the current $1 billion threshold
represents ‘‘material value’’ to Fedwire
Funds Service participants, that the $1
billion threshold provides benefits to
sending and receiving banks and to their
respective customers, and that a higher
threshold may result in more wire
transfers being delayed until the next
business day.
In light of these comments, the Board
further assessed a range of options and
scenarios for increasing the dollar value
threshold for extensions to the Fedwire
Fund Service. The Board’s analysis
assumed that the Reserve Banks would
modify the policy of maintaining a twohour window between the closing and
reopening of the Fedwire Funds Service
to maintain only 90 minutes.
The Board used data from a 43-month
period, from January 2016 through July
2019, to analyze whether changing the
dollar-value threshold would reduce the
risk of more-frequent delays to the
reopening of the Fedwire Funds Service.
From January 2016 through July 2019,
the Reserve Banks granted
approximately 13 extensions per year to
the Fedwire Funds Service hours,
approximately 2 of which required the
Reserve Banks to delay the 9:00 p.m. ET
reopening of the Fedwire Funds
Service.20 Over that same period, if the
Reserve Banks had maintained a $1
billion threshold but expanded the
operating hours of NSS and the Fedwire
Funds Service as the Board has
approved in this notice, the Reserve
Banks would have granted
approximately 20 extensions per year,
approximately 7 of which would have
required a delay to the reopening of the
Fedwire Funds Service. If the Reserve
Banks had adopted a value threshold of
$3 billion over that same period with
expanded operating hours of NSS and
the Fedwire Funds Service, the Reserve
Banks would have granted
approximately 13 extensions per year,
approximately 5 of which would have
required a delay to the reopening.
Finally, if the Reserve Banks had
adopted a value threshold of $5 billion
over that period with expanded
operating hours of NSS and the Fedwire
Funds Service, the Reserve Banks would
have granted approximately 10
extensions per year, approximately 4 of
which would have required a delay to
the reopening of the Fedwire Funds
Service.
The Board also analyzed adjusting the
$1 billion threshold to account for
inflation since 1997, but that adjustment
would raise the value threshold to an
amount less than $2 billion, which
would not materially reduce the number
of extensions granted, and by extension,
not reduce the number of delayed
reopenings of the Fedwire Funds
Service. Further, the Board believes that
changing the structure of the threshold
as suggested by certain commenters (for
example, adopting a tiered threshold)
would add unnecessary complexity to
the process the Reserve Banks use to
administer extensions.
The Board has approved an increase
to the Reserve Banks’ dollar value
threshold for extension requests for the
Fedwire Funds Service hours to $3
billion, starting on March 19, 2021. The
Board believes that increasing the
extension threshold to $3 billion will
limit the increase in disruptive delays to
the 9:00 p.m. ET reopening of the
Fedwire Funds Service while
recognizing the concerns of commenters
who favored a threshold lower than $5
billion. The Reserve Banks will closely
monitor delays in reopening the
Fedwire Funds Service and will
determine, in consultation with the
Board, whether further increases to the
threshold are warranted.21
20 Over the 43-month period from January 2016
through July 2019, the Reserve Banks cumulatively
granted 47 extensions to the Fedwire Funds Service
hours, 7 of which required the Reserve Banks to
delay the 9:00 p.m. ET reopening of the Fedwire
Funds Service.
21 The Reserve Banks will continue to use
discretion when granting extensions. Also, given
the comments received through this notice, the
Board does not believe that a potential future
change to the extension threshold would
necessarily warrant public comment.
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20:00 Dec 27, 2019
Jkt 250001
iii. Implementing Both Options
Simultaneously
The Board requested comment on
whether the Reserve Banks should
PO 00000
Frm 00055
Fmt 4703
Sfmt 4703
implement the options described above
simultaneously—that is, whether the
Reserve Banks should simultaneously
reduce the 2-hour window to 90
minutes and increase the dollar
threshold for extensions. One
commenter recommended an
incremental approach in which the
Reserve Banks would first increase the
dollar threshold and subsequently
reduce the window between the closing
and reopening of the Fedwire Funds
Service. The commenter suggested that
an incremental approach would give
financial institutions more time to
enhance the efficiency of their end-ofday processing. The Board believes that
implementing both options
simultaneously is necessary to reduce to
the extent possible delays to the
reopening of the Fedwire Funds Service.
If the Reserve Banks were to follow an
incremental approach and raise the
dollar threshold before reducing the 2hour window to 90 minutes, the Reserve
Banks would grant fewer extensions to
the closing of the Fedwire Funds
Service, but each extension would
require a delay to the reopening of the
Fedwire Funds Service.
The Board has approved these
modifications for implementation
simultaneously on March 19, 2021.
D. Related Changes to the PSR Policy
The Board also proposed conforming
changes to Part II of the PSR policy,
which governs the provision of intraday
credit by the Reserve Banks and
establishes procedures—called ‘‘posting
rules’’—for the settlement of debits and
credits to institutions’ Federal Reserve
accounts for different payment types, to
enable adding a third same-day ACH
window.22 Specifically, adopting a third
same-day ACH processing window
requires that the Board modify the PSR
policy by adding a 6:00 p.m. ET posting
time for settlement of commercial and
government same-day ACH transactions
and removing the current 5:30 p.m. ET
posting time for ACH return
transactions, because these return
transactions will post at the new 6:00
p.m. ET posting time for same-day ACH
transactions.23 Additionally, extending
the closing time of the Fedwire Funds
Service will increase slightly the fee that
an institution pays for daylight
overdrafts, because (under section II.C
of the PSR policy) the Reserve Banks
calculate the daylight overdraft fees
22 The PSR policy is available at https://
www.federalreserve.gov/paymentsystems/files/psr_
policy.pdf.
23 Posting of paper returns of same-day forward
items that currently post at 5:30 p.m. ET will also
move to the new 6:00 p.m. ET posting time.
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Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
based on the length of the standard
Fedwire operating day.
Commenters supported the proposed
conforming changes to the PSR policy.
These changes will take effect when the
Reserve Banks implement the related
changes to NSS and the Fedwire Funds
Service on March 19, 2021.
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III. Criteria for Evaluating the Federal
Reserve’s Role in the Payment System
As described in the Notice, the
modifications to operating hours for
NSS and the Fedwire Funds Service are
each considered major service
enhancements. Any potential new
payment service or major enhancements
to an existing service must meet the
following criteria: The Federal Reserve
must expect to achieve full recovery of
costs over the long run; the Federal
Reserve must expect that its providing
the service will yield a clear public
benefit; and the service should be one
that other providers alone cannot be
expected to provide with reasonable
effectiveness, scope, and equity.24
The Board expects that, over the long
run, the Reserve Banks will be able to
recover the costs associated with the
extended operating hours. Extending the
operating hours for NSS and the
Fedwire Funds Service requires
relatively minor technical changes and
additional staffing during the extended
business day, resulting in minimal onetime implementation costs and ongoing
additional staffing costs. The Reserve
Banks anticipate recovering these costs
through existing fees charged for NSS
and the Fedwire Funds Service.
The Board also expects that extending
operating hours for NSS and the
Fedwire Funds Service to support a
third same-day ACH window will offer
public benefits. Same-day ACH
transactions are used for payroll
(especially emergency payroll),
business-to-business payments,
consumer bill payments, and consumer
account-to-account payments. As
expressed in the feedback received from
commenters, by allowing banks to
submit same-day ACH transactions later
in the business day, the third same-day
ACH window could encourage more
banks (particularly those in the
mountain and Pacific time zones) to
offer same-day ACH to their customers,
potentially increasing usage more
24 Clear public benefits include promoting the
integrity of the payment system, improving the
effectiveness of financial markets, reducing the risk
associated with payment and securities-transfer
services, or improving the efficiency of the payment
system. Board of Governors of the Federal Reserve
System, ‘‘Federal Reserve in the Payment System,’’
Issued 1984; revised 1990. Available at https://
www.federalreserve.gov/paymentsystems/pfs_
frpaysys.htm.
VerDate Sep<11>2014
20:00 Dec 27, 2019
Jkt 250001
broadly and resulting in increased
adoption of same-day ACH payments.25
Increased usage would further advance
the Federal Reserve’s ongoing objective
to improve the speed and efficiency of
the payment system in the United
States. Further, the Board believes that
extending the operating hours for NSS
and the Fedwire Funds Service offers
public benefits for reasons unrelated to
a third same-day ACH window. For
example, these extended operating
hours will allow banks to offer
increased availability of the Fedwire
Funds Service during the day to their
customers.
The Board recognizes, however, that
extending operating hours may increase
certain risks and costs for banks and
their customers, including risks and
costs related to additional staffing,
compression of end-of-day processing
activities, decreased availability of
extensions to operating hours, and
more-frequent delays to the reopening of
the Fedwire Funds Service. As
described in this notice, the Board has
approved a modification to the Reserve
Banks practice of maintaining a 2-hour
window between the closing and the
reopening of the Fedwire Funds Service
to maintain only a 90-minute window as
well as an increase to the Reserve Banks
threshold for granting extensions to the
Fedwire Funds Service closing time
from $1 billion to $3 billion to mitigate
these risks and costs.
Finally, the Board does not expect
that other providers alone could provide
the enhanced services with reasonable
effectiveness, scope, and equity. TCH
relies on NSS to settle its in-network
ACH transactions, including same-day
ACH transactions, and so would be
unable to offer a third same-day ACH
window with settlement at 6:00 p.m. ET
if the Reserve Banks did not extend the
closing time of NSS.
IV. Competitive Impact Analysis
When considering changes to an
existing service, the Board conducts a
competitive impact analysis to
determine whether there will be a direct
and material adverse effect on the
ability of other service providers to
compete effectively with the Federal
Reserve in providing similar services
due to differing legal powers or the
Federal Reserve’s dominant market
position deriving from such legal
25 In the ACH network, RDFIs are defined as
entities that receive ACH transactions, while
Originating Depository Financial Institutions
(ODFIs) are defined as those entities that originate
ACH transactions.
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Frm 00056
Fmt 4703
Sfmt 4703
71945
differences.26 The Board believes that
there will be no adverse effects to other
service providers resulting from
extending the operating hours of NSS
and the Fedwire Funds Service. As
described earlier, the changes to NSS
and the Fedwire Funds Service will
allow TCH, the private-sector ACH
operator, to implement the third sameday ACH window. This would promote
competitive fairness between the two
ACH operators.
V. Conclusion
As described above, the Board has
approved the following modifications
and enhancements to NSS and the
Fedwire Funds Service and the Reserve
Banks will implement the changes on
March 19, 2021. Additionally, the Board
has approved changes to the PSR policy
that will take effect when the Reserve
Banks implement the related changes to
NSS and the Fedwire Funds Service.
A. Fedwire Funds Service Operating
Hours
The Fedwire Funds third-party cutoff
will occur at 6:45 p.m. ET and the
closing of the Fedwire Funds Service
will occur at 7:00 p.m. ET. The opening
time for the Fedwire Funds Service will
remain at 9 p.m. ET on the previous
calendar day. The service will be
available for business days Monday
through Friday, except for specified
holidays observed by the Reserve Banks.
B. National Settlement Service
Operating Hours
The closing of the National Settlement
Service will occur at 6:30 p.m. ET. The
opening time for the National
Settlement Service will remain at 7:30
a.m. ET.
C. Window Between the Closing and
Reopening of the Fedwire Funds Service
The Reserve Banks will modify their
current practice of maintaining a 2-hour
window between the closing and the
reopening of the Fedwire Funds Service
to maintain only a 90-minute window.
D. Fedwire Funds Service Extension
Threshold
The Reserve Banks will raise the
threshold for granting extensions to the
Fedwire Funds Service closing time
from $1 billion to $3 billion. The
Reserve Banks, in consultation with the
Board, will determine whether further
increases to the threshold are warranted
to maintain the regular and consistent
open of the Fedwire Funds Service at
9:00 p.m. ET.
26 See The Federal Reserve in the Payments
System (issued 1984; revised 1990), Federal Reserve
Regulatory Service 9–1558.
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Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
E. PSR Policy
The Board is amending part II of the
PSR policy to add a new 6:00 p.m. ET
posting time for same-day ACH
transactions, remove the current 5:30
p.m. ET posting time for ACH return
transactions, and make conforming
changes to the daylight overdraft fee
calculation.
VI. Federal Reserve Policy on Payment
System Risk (PSR)
The Board amends part II of the PSR
policy.
Revisions to Section II.A of the PSR
Policy
Revise Section II.A, Opening balance
(previous day’s closing balance), as
follows:
A. Daylight Overdraft Definition and
Measurement
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*
*
*
*
*
Post by 1:00 p.m. eastern time:
+/¥ Commercial check transactions,
including returned checks
+/¥ Government and commercial
FedACH SameDay Service
transactions, including return
items 34
+ Same-day Treasury investments.
Post at 5:00 p.m. eastern time:
+/¥ Government and commercial
FedACH SameDay Service
transactions, including return
items 35
+ 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
Post at 5:30 p.m. eastern time:
+/¥ Commercial check transactions,
including returned checks
Post at 6:00 p.m. eastern time:
+/¥ Government and commercial
FedACH SameDay Service
transactions, including return
items 36
*
*
*
*
*
20:00 Dec 27, 2019
Jkt 250001
C. Pricing
*
*
*
*
*
Daylight overdraft fees for
uncollateralized overdrafts (or the
uncollateralized portion of a partially
collateralized overdraft) are calculated
using an annual rate of 50 basis points,
quoted on the basis of a 24-hour day and
a 360-day year. To obtain the effective
annual rate for the standard Fedwire
operating day, the 50-basis-point annual
rate is multiplied by the fraction of a 24hour day during which Fedwire is
scheduled to operate. For example,
under a 22-hour scheduled Fedwire
operating day, the effective annual rate
used to calculate daylight overdraft fees
equals 45.83 basis points (50 basis
points multiplied by 22/24).55 The
effective daily rate is calculated by
dividing the effective annual rate by
360.56 An institution’s daily daylight
overdraft charge is equal to the effective
daily rate multiplied by the institution’s
average daily uncollateralized daylight
overdraft.
*
*
*
*
*
Revisions to Section II.F of the PSR
Policy
Revise section II.F, paragraph 3 as
follows:
*
*
*
*
*
Certain institutions are subject to a
daylight-overdraft penalty fee levied
against the average daily daylight
overdraft incurred by the institution.
These include Edge and agreement
corporations, bankers’ banks that are not
subject to reserve requirements, and
limited-purpose trust companies. The
annual rate used to determine the
daylight-overdraft penalty fee is equal to
the annual rate applicable to the
daylight overdrafts of other institutions
(50 basis points) plus 100 basis points
multiplied by the fraction of a 24-hour
day during which Fedwire is scheduled
to operate (currently 22/24). The daily
daylight-overdraft penalty rate is
8:30 a.m. and 5:00 p.m., depending on when the
item is received by Reserve Banks.
55 A change in the length of the scheduled
Fedwire operating day should not significantly
change the amount of fees charged because the
effective daily rate is applied to average daylight
overdrafts, the calculation of which would also
reflect the change in the operating day.
56 Under the current 22-hour Fedwire operating
day, the effective daily daylight-overdraft rate is
truncated to 0.0000127.
PO 00000
Frm 00057
Fmt 4703
calculated by dividing the annual
penalty rate by 360.74 The daylightoverdraft penalty rate applies to the
institution’s daily average daylight
overdraft in its Federal Reserve account.
The daylight-overdraft penalty rate is
charged in lieu of, not in addition to, the
rate used to calculate daylight overdraft
fees for institutions described in this
section.
By order of the Board of Governors of the
Federal Reserve System, December 20, 2019.
Ann Misback,
Secretary of the Board.
[FR Doc. 2019–28002 Filed 12–27–19; 8:45 am]
BILLING CODE P
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
[OMB Control No. 9000–0032; Docket No.
2019–0003; Sequence No. 30]
Submission for OMB Review;
Contractor Use of Interagency Fleet
Management System Vehicles
Department of Defense (DOD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Notice.
AGENCY:
Under the provisions of the
Paperwork Reduction Act, the
Regulatory Secretariat Division has
submitted to the Office of Management
and Budget (OMB) a request to review
and approve a revision and renewal of
a previously approved information
collection requirement regarding
contractor use of Interagency Fleet
Management System vehicles.
DATES: Submit comments on or before
January 29, 2020.
ADDRESSES: Submit comments regarding
this burden estimate or any other aspect
of this collection of information,
including suggestions for reducing this
burden to: Office of Information and
Regulatory Affairs of OMB, Attention:
Desk Officer for GSA, Room 10236,
NEOB, Washington, DC 20503 or at
Oira_submission@omb.eop.gov.
Additionally submit a copy to GSA by
any of the following methods:
• Federal eRulemaking Portal: This
website provides the ability to type
short comments directly into the
SUMMARY:
F. Special Situations
34 With the exception of paper returns and paper
notifications of change (NOCs) of prior-dated items
that only post at 5:00 p.m.; paper returns of sameday forward items that only post at 6:00 p.m.; and
FedLine Web returns and FedLine Web NOCs that
only post at 8:30 a.m. and 5:00 p.m., depending on
when the item is received by Reserve Banks.
35 With the exception of paper returns of sameday forward items that only post at 6:00 p.m.
36 With the exception of paper returns and paper
notifications of change (NOCs) of prior-dated items
that only post at 5:00 p.m.; and FedLine Web
returns and FedLine Web NOCs that only post at
VerDate Sep<11>2014
Revisions to Section II.C of the PSR
Policy
The Board will revise section II.C,
paragraph 3 of the PSR policy as
follows:
Sfmt 4703
74 Under the current 22-hour Fedwire operating
day, the effective daily daylight-overdraft penalty
rate is truncated to 0.0000382.
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]]>Agencies
[Federal Register Volume 84, Number 249 (Monday, December 30, 2019)]
[Notices]
[Pages 71940-71946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28002]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
[Docket No. OP-1692]
Modifications to the Federal Reserve Banks' National Settlement
Service and Fedwire[supreg] Funds Service To Support Enhancements to
the Same-Day ACH Service and Corresponding Changes to the Federal
Reserve Policy on Payment System Risk
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: The Board of Governors (Board) has approved modifications to
the Federal Reserve Banks' (Reserve Banks) payment services to
facilitate adoption of a later same-day automated clearinghouse (ACH)
processing and settlement window. Specifically, the Reserve Banks will
extend the daily operating hours of the National Settlement Service
(NSS) and the Fedwire[supreg] Funds Service. To mitigate the risk that
these modified hours will cause more frequent delays to the 9:00 p.m.
eastern time (ET) reopening of the Fedwire Funds Service, the Reserve
Banks will modify the practice of maintaining a 2-hour window between
the closing and reopening of the Fedwire Funds Service to maintain only
a 90-minute window, and will increase the $1 billion value threshold
for extending the closing of the Fedwire Funds Service to $3 billion.
Finally, the Board has approved corresponding changes to the Federal
Reserve Policy on Payment System Risk (PSR policy).
DATES: Implementation date: March 19, 2021.
FOR FURTHER INFORMATION CONTACT: Michael Ballard, Senior Financial
Institution and Policy Analyst (202-452-2384); Ann Sun, Lead Financial
Institution and Policy Analyst (202-912-7938), Division of Reserve Bank
Operations and Payment Systems; or Evan H. Winerman, Senior Counsel
(202-872-7578), Legal Division; for users of Telecommunication Devices
for the Deaf (TDD) only, contact (202-263-4869).
SUPPLEMENTARY INFORMATION:
I. Background
On May 16, 2019, the Board published a Federal Register notice
(Notice) seeking public comment on modifications to the Reserve Banks'
payment services to facilitate adoption of a later same-day ACH
processing and settlement window.\1\ As described more fully in the
Notice, the ACH network is made up of two network operators: The
Reserve Banks, which operate the FedACH[supreg] service, and The
Clearing House Payments Company L.L.C. (TCH), which operates the
Electronic Payments Network (EPN) service.\2\ The ACH network is
governed by the rules of the ACH operators, which generally incorporate
the Nacha Operating Rules
[[Page 71941]]
and Guidelines adopted by Nacha's members.\3\ Nacha amended its
operating rules on September 13, 2018, to implement a later same-day
ACH window.\4\ The amended operating rules, however, are contingent on
changes to Reserve Bank services that would enable TCH, the private-
sector ACH operator, using NSS, to settle transactions between its
customers during this later same-day ACH window.\5\
---------------------------------------------------------------------------
\1\ 84 FR 22123 (May 16, 2019). In addition, the Board has
announced that the Federal Reserve intends to explore further
expanded hours for NSS and the Fedwire Funds Service, up to 24 x 7 x
365, to support a wide range of payment activities, including
liquidity management in private-sector real-time gross settlement
services for faster payments. See 84 FR 39297 (August 9, 2019). The
Board is analyzing the risk, operational, and policy implications of
further expanding operating hours of NSS and the Fedwire Funds
Service.
\2\ The Reserve Banks settle all ACH transactions that are
originated or received by FedACH customers, including transactions
that are exchanged between the two operators. TCH arranges
settlement for only those ACH transactions that are originated and
received by EPN customers (that is, transactions within the EPN
network). The Reserve Banks settle ACH transactions by posting
credits and debits to the sending and receiving banks' Federal
Reserve accounts at the settlement time and date provided in the
FedACH processing schedule. TCH uses NSS to settle its in-network
ACH transactions in participants' Federal Reserve accounts,
typically sending NSS files at the same times the Reserve Banks
settle FedACH transactions.
\3\ Nacha's membership consists of insured financial
institutions and regional payment associations.
\4\ See https://www.Nacha.org/news/same-day-ach-will-be-enhanced-meet-ach-end-user-needs.
\5\ See n.2, supra.
---------------------------------------------------------------------------
Currently, there are three ACH processing and settlement windows:
One next-day window and two same-day windows. The two current same-day
windows consist of (1) a morning window with a submission deadline at
10:30 a.m. ET and settlement at 1:00 p.m. ET and (2) an afternoon
window with a submission deadline at 2:45 p.m. ET and settlement at
5:00 p.m. ET.\6\ The later same-day ACH processing and settlement
window outlined in the Notice would have an afternoon submission
deadline of 4:45 p.m. ET and settlement at 6:00 p.m. ET, which is later
than the current operating hours of NSS.\7\
---------------------------------------------------------------------------
\6\ During each window, the ACH operators process the
transactions received by the submission deadline and either
distribute the transactions to the receiving depository financial
institutions (RDFIs) that are their direct customers or exchange
with each other the ACH transactions that are destined to RDFIs that
are customers of the other operator.
\7\ The actual schedules and timing are determined by each ACH
operator and are not set by the Nacha Operating Rules and
Guidelines.
---------------------------------------------------------------------------
The Board requested comment on (1) extending the closing time of
NSS by one hour, from 5:30 p.m. ET to 6:30 p.m. ET, (2) extending the
cutoff time for Reserve Bank account holders to initiate transfers on
behalf of third parties via the Fedwire Funds Service (Fedwire Funds
third-party cutoff) by 45 minutes, from 6:00 p.m. ET to 6:45 p.m. ET,
and (3) extending the closing of the Fedwire Funds Service by 30
minutes, from 6:30 p.m. ET to 7:00 p.m. ET. These proposed changes were
intended to allow sufficient time for depository institutions and their
customers to reposition balances and manage liquidity between the
closing of NSS, the Fedwire Funds third-party cutoff, and the closing
of the Fedwire Funds Service. Table 1 summarizes the proposed changes
to closings and cutoffs for Reserve Bank services, while Table 2
illustrates the proposed changes in times between service closings and
cutoffs.
Table 1--Proposed Changes to Closings and Cutoffs for Reserve Bank Services
----------------------------------------------------------------------------------------------------------------
Current closings/cutoffs Proposed closings/cutoffs
----------------------------------------------------------------------------------------------------------------
NSS closing........................ 5:30 p.m. ET.............. 6:30 p.m. ET.
Fedwire Funds third-party cutoff... 6:00 p.m. ET.............. 6:45 p.m. ET.
Fedwire Funds Service closing...... 6:30 p.m. ET.............. 7:00 p.m. ET.
----------------------------------------------------------------------------------------------------------------
Table 2--Proposed Changes in Times Between Service Closings and Cutoffs
------------------------------------------------------------------------
Current time Proposed time
between closings/ between closings/
cutoffs cutoffs
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Time between closing of NSS and 30 minutes 15 minutes.
Fedwire Funds third-party
cutoff.........................
Time between Fedwire Funds third- 30 minutes 15 minutes.
party cutoff and closing of
Fedwire Funds Service..........
Time between closing of NSS and 60 minutes 30 minutes.
closing of Fedwire Funds
Service........................
------------------------------------------------------------------------
The Board requested comment on how depository institutions and
their customers might use a third same-day ACH window and the extended
NSS/Fedwire Funds Service hours. The Board also requested comment on
whether reducing the time between service closings and cutoffs would
increase risks and costs for depository institutions and their
customers. Additionally, the Board requested comment on certain
operational and policy changes to reduce the risk that the proposed
changes to service closings and cutoffs would increase the frequency of
delays to the reopening of the Fedwire Funds Service. Specifically, the
Board requested comment on modifying (1) the practice of maintaining a
2-hour window between the closing of the Fedwire Funds Service (for one
funds-transfer business day) and the reopening of the Fedwire Funds
Service (for the next funds-transfer business day) and (2) the Reserve
Banks' dollar value threshold for providing extensions to the Fedwire
Funds Service hours. Finally, the Board requested comment on
corresponding changes to the PSR policy.
II. Summary of Comments and Analysis
The Board received 77 comments from small and midsize banks, large
banks, banking trade associations, end users and associations
representing end users, payment trade associations (including national
and regional payment associations), third-party processors and service
providers, TCH, Nacha, and other interested parties.\8\ Sixty-five
commenters generally supported the Board's proposed changes, 10
commenters did not support the proposed changes, and 2 commenters took
no clear position.
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\8\ Duplicate submissions or similar comments from the same
commenter were treated as a single submission. Throughout this
notice, the term ``bank'' will be used to refer to any type of
depository institution. Depository institutions include commercial
banks, savings banks, savings and loan associations, and credit
unions.
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A. Supporting the Third Same-Day ACH Processing and Settlement Window
Most commenters supported a third same-day ACH processing and
settlement window alongside the proposed operating changes to Reserve
Banks' payment services, emphasizing the potential benefits to banks
and customers located outside the eastern time zone. These commenters
believed that making same-day ACH available during greater portions of
the business day could make the service more attractive for time-
sensitive payments, particularly for banks and customers located in the
mountain and Pacific time zones. These commenters also suggested that a
third same-day ACH window may encourage more banks to offer same-day
ACH services to customers.
[[Page 71942]]
Some commenters also noted the benefits of extending NSS and
Fedwire Funds Service hours for reasons unrelated to same-day ACH.
Commenters suggested that extended NSS and Fedwire Funds Service hours
would provide further flexibility for their customers to use these
services later in the business day. Additionally, commenters suggested
that these changes would incrementally improve the ability to transfer
funds between Federal Reserve accounts for a private-sector real-time
gross settlement service for faster payments.
Ten commenters did not support a third same-day ACH window because
of potential staffing costs associated with a longer operating day and,
by extension, did not support the proposed changes to the cutoff and
closing times for NSS and the Fedwire Funds Service. Most of these
commenters were small and midsize banks located in the eastern or
central time zones that would need to modify staffing hours to cover a
third same-day ACH window. These banks noted that they generally do not
originate same-day ACH transactions. At the same time, 21 small and
midsize banks (many located in the Pacific time zone) supported the
proposed changes. The Board recognizes that adding a third same-day ACH
window may incrementally increase costs for certain banks. The Board,
however, believes that adding a third-same day ACH window will enhance
the availability of the same-day ACH service nationwide, particularly
for banks and customers in the mountain and Pacific and time zones,
enabling those banks to receive advantages similar to those already
experienced by banks in eastern or central time zones. In addition,
supporting a third same-day ACH window would advance the Federal
Reserve's ongoing objective to improve the speed and efficiency of the
payment system in the United States.
B. Extending the Operating Hours of NSS and the Fedwire Funds Service
As described above, to accommodate a third same-day ACH window, the
Board proposed that the Reserve Banks extend the operating hours of
NSS, the Fedwire Funds third-party cutoff, and the operating hours of
the Fedwire Funds Service. The Board requested comment on whether the
reduction in time between the closing of NSS, the Fedwire Funds Service
third-party cutoff, and the closing of the Fedwire Funds Service would
pose challenges for banks' end-of-day processes.\9\
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\9\ End-of-day cycles and processing typically involve the
reconciliation and preparation of systems for the next cycle date as
well as the production of customer statements.
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Supportive commenters generally indicated that the changes and
costs associated with extending the operating hours of NSS and the
Fedwire Funds Service would not be significant. While the supportive
commenters noted that they would need to modify internal processes and
procedures, staffing, and certain technological systems and
applications, these commenters did not believe that these modifications
would be extensive. These commenters indicated that they would be able
to make the necessary changes by March 19, 2021, which is Nacha's
current effective date for implementing the later same-day ACH window.
As noted previously, some small and mid-size bank commenters were not
supportive of the third same-day ACH window or the proposed changes to
the cutoff and closing times for NSS and the Fedwire Funds Service.
Six commenters, including two large banks, noted that the
compressed end-of-day timeline may increase the frequency of requests
to extend the closing of the Fedwire Funds Service operating day;
conversely, seven commenters, including one large bank, stated that the
compressed end-of-day timeline would not increase the frequency of
extension requests.
The Board has approved the proposed extensions to the operating
hours of NSS, the Fedwire Funds third-party cutoff, and the closing of
the Fedwire Funds Service. When the Reserve Banks implement these
changes on March 19, 2021, NSS will close at 6:30 p.m. ET, the Fedwire
Funds third-party cutoff will occur at 6:45 p.m. ET, and the Fedwire
Funds Service will close at 7:00 p.m. ET. The Reserve Banks will
monitor for any increased frequency of extension requests resulting
from this compressed end-of-day timeline. As described further below,
the Reserve Banks will take certain steps to reduce the risk that
extension requests will result in more frequent delays to the reopening
of the Fedwire Funds Service.
In addition, as the Board analyzed the changes further, it examined
the interplay between extending the operating hours for the Fedwire
Funds Service alongside the time frame for repositioning securities
free of payment within the Fedwire Securities Service. Currently, the
closing time for the Fedwire Securities Service for repositioning free
of payment is 7:00 p.m. ET, 30 minutes after the close of the Fedwire
Funds Service at 6:30 p.m. ET.\10\ While the Board did not receive any
comments raising concerns related to the timing for repositioning
securities relative to expanding the operating hours of the Fedwire
Funds Service, Reserve Bank staff intends to engage with Fedwire
Securities Service participants to determine, in consultation with the
Board, if a change to the closing time for repositioning securities
free of payment in the relevant Operating Circular would be warranted.
At this time, based on the low amount of past usage of the
repositioning window, the Board believes that any potential changes to
the closing time for repositioning securities free of payment at 7:00
p.m. ET would not have a long-run effect on the payment system, because
that period is generally used for intraparticipant repositioning and
therefore would not necessarily warrant public comment.
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\10\ See Operating Circular 7, appendix B at https://www.frbservices.org/assets/resources/rules-regulations/operating-circular-7-102917.pdf.
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C. Reducing the Risk of More Frequent Delays to the Reopening of the
Fedwire Funds Service
Fedwire Funds Service operating hours currently begin at 9:00 p.m.
ET on the preceding calendar day and end at 6:30 p.m. ET, Monday
through Friday. The Reserve Banks currently strive to maintain at least
a 2-hour window between the closing and reopening of the Fedwire Funds
Service to allow Fedwire participants sufficient time to complete their
end-of-day cycles and processing.\11\ With a change to the closing time
of the Fedwire Funds Service from 6:30 p.m. ET to 7:00 p.m. ET, the
window between the closing and reopening of the Fedwire Funds Service
would be reduced from 2 hours and 30 minutes to 2 hours. Accordingly,
if the Reserve Banks maintain their current practice of providing a 2-
hour window between the closing and reopening of the Fedwire Funds
Service, any extension granted to the closing of the Fedwire Funds
Service would result in the delayed reopening of the Fedwire Funds
Service for the next business day.\12\
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\11\ See https://www.frbservices.org/resources/financial-services/wires/extension-guidelines.html. See also 68 FR 28826,
28827 (May 27, 2003) (``In general, the Federal Reserve Banks will
work to maintain a two-hour interim period between the close and
open of Fedwire each business day'').
\12\ For example, a 15-minute extension to the Fedwire Funds
Service closing (from 7:00 p.m. ET to 7:15 p.m. ET) would result in
a 15-minute delay to the reopening of the Fedwire business day (from
9:00 p.m. ET to 9:15 p.m. ET).
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The Reserve Banks allow participants to request extensions to the
Fedwire Funds third-party cutoff or the Fedwire
[[Page 71943]]
Funds Service closing time if, among other things, the dollar value of
delayed transfers would exceed $1 billion.\13\ The Reserve Banks also
allow participants to request extensions to the NSS closing, although
such requests are uncommon.\14\ Extensions to the Fedwire Funds third-
party cutoff, the Fedwire Funds Service closing time, or both currently
occur approximately twice per month and, in most cases, do not affect
the reopening time of the Fedwire Funds Service for the next business
day.\15\ Given the compressed end-of-day time frame, any extension to
the closing of NSS or the Fedwire Funds third-party cutoff will require
an extension to the Fedwire Funds Service closing time.\16\ If the
Reserve Banks maintain their current practice of providing a 2-hour
window between the closing and reopening of the Fedwire Funds Service,
any extension granted to the closing of the Fedwire Funds Service would
result in the delayed reopening of the Fedwire Funds Service for the
next business day.
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\13\ See Operating Circular 6, section 10.3, and https://www.frbservices.org/resources/financial-services/wires/extension-guidelines.html. Additionally, if the Fedwire Funds Service
experiences an operational disruption, the Reserve Banks may extend
the Fedwire Funds Service closing time regardless of the dollar
value still to be sent.
\14\ Operating Circular 12, section 5.8, provides discretion to
a Reserve Bank to extend the NSS settlement window. While extensions
to the closing of NSS are uncommon, such extensions could be
required when system outages or problems prevent the submission or
processing of NSS files.
\15\ Over a 43-month period from January 2016 through July 2019,
the Reserve Banks granted 47 extensions to the closing of the
Fedwire Funds Service, ultimately resulting in seven delays to the
reopening of the Fedwire Funds Service. Thirty-three of these
extensions were a result of extensions granted to the Fedwire Funds
third-party cutoff. The Reserve Banks also granted 23 extensions to
the Fedwire Funds third-party cutoff that did not require extensions
to the closing of the Fedwire Funds Service. Currently, the Reserve
Banks can provide up to a 45-minute extension to the Fedwire Funds
third-party cutoff (from 6:00 p.m. ET to 6:45 p.m. ET) without
delaying the reopening of the Fedwire Funds Service. In such
circumstances, the Reserve Banks also can provide a 30-minute
extension to the closing of Fedwire Funds Service (from 6:30 p.m. to
7:00 p.m. ET) and still maintain (a) a 15-minute window between the
Fedwire Funds third-party cutoff and the closing of the Fedwire
Funds Service and (b) a 2-hour window between the closing and
reopening of the Fedwire Funds Service.
\16\ The Federal Reserve has long provided at least 30 minutes
between the last NSS settlement and the closing of the Fedwire Funds
Service, recognizing that ``the Fedwire funds transfer service is
the primary alternative for orderly and efficient settlement of
bilateral obligations in case a settlement arrangement is unable to
complete its multilateral settlement through NSS.'' See 63 FR 60000,
60004 (Nov. 6, 1998). The Fedwire Funds third-party cutoff was
established to stop the flow of customer transactions and allow
financial institutions a settlement period to conduct bank-to-bank
transfers to adjust master account positions before the closing of
the Fedwire Funds Service. The current Fedwire Funds third-party
cutoff of 6:00 p.m. ET was established in 1990. See 55 FR 18755,
18758 (May 4, 1990).
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Delays to the reopening of the Fedwire Funds Service could affect
Fedwire Funds Service participants that wish to send payment orders at
the start of the Fedwire Funds Service business day. On average, $35
billion is settled over the Fedwire Funds Service during the first hour
of the Fedwire Funds Service business day (9:00 p.m. ET to 10:00 p.m.
ET). Seven commenters, including five large banks, emphasized the
importance of preserving the consistent and regular opening of the
Fedwire Funds Service at 9:00 p.m. ET. These commenters noted that the
CHIPS[supreg] funds-transfer system, a large-value payment system that
is owned and operated by TCH, relies on the Fedwire Funds Service for
prefunding at 9:00 p.m. ET.\17\ These commenters also noted that the
9:00 p.m. ET opening of the Fedwire Funds Service has helped U.S. banks
remain competitive in providing U.S. dollar (USD) payment services to
clients in the Asia-Pacific market, consistent with the Federal
Reserve's original rationale for opening the Fedwire Funds Service at
9:00 p.m. ET.\18\ Commenters further stated that, if delays to the
reopening of the Fedwire Funds Service were to become more frequent,
customers in the Asia-Pacific markets could switch to offshore USD
clearing systems or could transact in non-USD currencies.
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\17\ Through October 31, 2019, CHIPS cleared and settled nearly
$1.7 trillion in domestic and international payments on average per
day. See https://www.theclearinghouse.org/-/media/new/tch/documents/payment-systems/chips-volume_v2.pdf. TCH noted in a comment letter
that 12 percent of CHIPS transaction volume and 5 percent of daily
transaction value are sent to CHIPS during the first hour of CHIPS
processing, from 9:00 p.m. to 10:00 p.m. ET.
\18\ In May 2003, the Board approved the expansion of the
operating hours for the Fedwire Funds Service by changing the
opening of the service from 12:30 a.m. ET to 9:00 p.m. ET on the
previous calendar day. The Federal Reserve adopted these expanded
hours in response to industry requests for greater overlap of U.S.
wholesale payment system operating hours with those of the Asia-
Pacific markets, including Australia, Hong Kong, Japan, and New
Zealand. See 68 FR 28826, 28828 (May 27, 2003).
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The Board believes it is important to limit, if possible, the
increase of delays to the reopening of the Fedwire Funds Service for
the reasons discussed by commenters. As described below, the Reserve
Banks will adopt certain operational and policy changes to limit the
increase in delays to the reopening of the Fedwire Funds Service.
i. Changing the Practice of Maintaining a 2-Hour Window Between the
Closing and Reopening of the Fedwire Funds Service
Seventeen commenters addressed the option of modifying the current
practice of maintaining a 2-hour window between the closing and
reopening of the Fedwire Funds Service to allow only a 90-minute
window. Sixteen commenters, including six large banks, three small and
midsize banks, three payment trade associations, two banking trade
associations, TCH, and Nacha, supported the reduction to a 90-minute
window. One commenter (a midsize bank) did not support this option,
suggesting that a 90-minute window may not be adequate for institutions
to perform their end-of-day processes.
While the Board recognizes that certain banks may need to make
operational adjustments to accommodate a 90-minute window between the
closing and reopening of the Fedwire Funds Service, the Board believes
that reducing this window will provide a crucial 30-minute buffer (as
exists today) for the Reserve Banks to extend the closing of the
Fedwire Funds Service(when necessary to prevent significant market
disruptions) without delaying the reopening of the Fedwire Funds
Service. This buffer would limit the potential increase in delays to
the 9:00 p.m. ET reopening of the Fedwire Funds Service, which would
reduce disruptions and liquidity strains for institutions that expect
payments at 9:00 p.m. ET and shortly thereafter. The Board has approved
this modification, which the Reserve Banks will implement on March 19,
2021.
ii. Changing the Guidelines for Providing Extensions to the Fedwire
Fund Service
Twenty commenters addressed the proposed option of modifying the
guidelines for granting extensions to the Fedwire Funds Service hours
(which have been in effect since 1997) by increasing the dollar value
threshold from $1 billion to $5 billion.\19\ Nine commenters, including
four payment trade associations, two small and midsize banks, a large
bank, a banking trade organization, and Nacha, supported the Board's
proposed increase of the dollar value threshold to $5 billion. Five
commenters supported the notion of increasing the threshold but did not
support the Board's proposed $5 billion threshold. Of those commenters,
two commenters supported increasing the threshold to $2
[[Page 71944]]
billion; one commenter supported increasing the threshold by some
amount less than $5 billion but did not take a position on the amount;
and two commenters proposed alternative structures or measures for
modifying the threshold. These commenters proposed options that
involved (1) increasing the threshold to account for inflation and
observed changes in the average daily value of Fedwire Funds Service
transactions; (2) creating a tiered threshold, with a lower threshold
for an initial extension and a higher threshold for subsequent
extension requests from the same requestor on the same day; or (3)
maintaining the current threshold of $1 billion for the first two
fifteen-minute extension requests and increasing the threshold to $5
billion for subsequent extensions.
---------------------------------------------------------------------------
\19\ One of these commenters, TCH, addressed this option but did
not take a position.
---------------------------------------------------------------------------
Finally, five commenters did not support increasing the threshold,
including three commenters who did not provide a rationale for this
position. The other two commenters noted that the current $1 billion
threshold represents ``material value'' to Fedwire Funds Service
participants, that the $1 billion threshold provides benefits to
sending and receiving banks and to their respective customers, and that
a higher threshold may result in more wire transfers being delayed
until the next business day.
In light of these comments, the Board further assessed a range of
options and scenarios for increasing the dollar value threshold for
extensions to the Fedwire Fund Service. The Board's analysis assumed
that the Reserve Banks would modify the policy of maintaining a two-
hour window between the closing and reopening of the Fedwire Funds
Service to maintain only 90 minutes.
The Board used data from a 43-month period, from January 2016
through July 2019, to analyze whether changing the dollar-value
threshold would reduce the risk of more-frequent delays to the
reopening of the Fedwire Funds Service. From January 2016 through July
2019, the Reserve Banks granted approximately 13 extensions per year to
the Fedwire Funds Service hours, approximately 2 of which required the
Reserve Banks to delay the 9:00 p.m. ET reopening of the Fedwire Funds
Service.\20\ Over that same period, if the Reserve Banks had maintained
a $1 billion threshold but expanded the operating hours of NSS and the
Fedwire Funds Service as the Board has approved in this notice, the
Reserve Banks would have granted approximately 20 extensions per year,
approximately 7 of which would have required a delay to the reopening
of the Fedwire Funds Service. If the Reserve Banks had adopted a value
threshold of $3 billion over that same period with expanded operating
hours of NSS and the Fedwire Funds Service, the Reserve Banks would
have granted approximately 13 extensions per year, approximately 5 of
which would have required a delay to the reopening. Finally, if the
Reserve Banks had adopted a value threshold of $5 billion over that
period with expanded operating hours of NSS and the Fedwire Funds
Service, the Reserve Banks would have granted approximately 10
extensions per year, approximately 4 of which would have required a
delay to the reopening of the Fedwire Funds Service.
---------------------------------------------------------------------------
\20\ Over the 43-month period from January 2016 through July
2019, the Reserve Banks cumulatively granted 47 extensions to the
Fedwire Funds Service hours, 7 of which required the Reserve Banks
to delay the 9:00 p.m. ET reopening of the Fedwire Funds Service.
---------------------------------------------------------------------------
The Board also analyzed adjusting the $1 billion threshold to
account for inflation since 1997, but that adjustment would raise the
value threshold to an amount less than $2 billion, which would not
materially reduce the number of extensions granted, and by extension,
not reduce the number of delayed reopenings of the Fedwire Funds
Service. Further, the Board believes that changing the structure of the
threshold as suggested by certain commenters (for example, adopting a
tiered threshold) would add unnecessary complexity to the process the
Reserve Banks use to administer extensions.
The Board has approved an increase to the Reserve Banks' dollar
value threshold for extension requests for the Fedwire Funds Service
hours to $3 billion, starting on March 19, 2021. The Board believes
that increasing the extension threshold to $3 billion will limit the
increase in disruptive delays to the 9:00 p.m. ET reopening of the
Fedwire Funds Service while recognizing the concerns of commenters who
favored a threshold lower than $5 billion. The Reserve Banks will
closely monitor delays in reopening the Fedwire Funds Service and will
determine, in consultation with the Board, whether further increases to
the threshold are warranted.\21\
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\21\ The Reserve Banks will continue to use discretion when
granting extensions. Also, given the comments received through this
notice, the Board does not believe that a potential future change to
the extension threshold would necessarily warrant public comment.
---------------------------------------------------------------------------
iii. Implementing Both Options Simultaneously
The Board requested comment on whether the Reserve Banks should
implement the options described above simultaneously--that is, whether
the Reserve Banks should simultaneously reduce the 2-hour window to 90
minutes and increase the dollar threshold for extensions. One commenter
recommended an incremental approach in which the Reserve Banks would
first increase the dollar threshold and subsequently reduce the window
between the closing and reopening of the Fedwire Funds Service. The
commenter suggested that an incremental approach would give financial
institutions more time to enhance the efficiency of their end-of-day
processing. The Board believes that implementing both options
simultaneously is necessary to reduce to the extent possible delays to
the reopening of the Fedwire Funds Service. If the Reserve Banks were
to follow an incremental approach and raise the dollar threshold before
reducing the 2-hour window to 90 minutes, the Reserve Banks would grant
fewer extensions to the closing of the Fedwire Funds Service, but each
extension would require a delay to the reopening of the Fedwire Funds
Service.
The Board has approved these modifications for implementation
simultaneously on March 19, 2021.
D. Related Changes to the PSR Policy
The Board also proposed conforming changes to Part II of the PSR
policy, which governs the provision of intraday credit by the Reserve
Banks and establishes procedures--called ``posting rules''--for the
settlement of debits and credits to institutions' Federal Reserve
accounts for different payment types, to enable adding a third same-day
ACH window.\22\ Specifically, adopting a third same-day ACH processing
window requires that the Board modify the PSR policy by adding a 6:00
p.m. ET posting time for settlement of commercial and government same-
day ACH transactions and removing the current 5:30 p.m. ET posting time
for ACH return transactions, because these return transactions will
post at the new 6:00 p.m. ET posting time for same-day ACH
transactions.\23\ Additionally, extending the closing time of the
Fedwire Funds Service will increase slightly the fee that an
institution pays for daylight overdrafts, because (under section II.C
of the PSR policy) the Reserve Banks calculate the daylight overdraft
fees
[[Page 71945]]
based on the length of the standard Fedwire operating day.
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\22\ The PSR policy is available at https://www.federalreserve.gov/paymentsystems/files/psr_policy.pdf.
\23\ Posting of paper returns of same-day forward items that
currently post at 5:30 p.m. ET will also move to the new 6:00 p.m.
ET posting time.
---------------------------------------------------------------------------
Commenters supported the proposed conforming changes to the PSR
policy. These changes will take effect when the Reserve Banks implement
the related changes to NSS and the Fedwire Funds Service on March 19,
2021.
III. Criteria for Evaluating the Federal Reserve's Role in the Payment
System
As described in the Notice, the modifications to operating hours
for NSS and the Fedwire Funds Service are each considered major service
enhancements. Any potential new payment service or major enhancements
to an existing service must meet the following criteria: The Federal
Reserve must expect to achieve full recovery of costs over the long
run; the Federal Reserve must expect that its providing the service
will yield a clear public benefit; and the service should be one that
other providers alone cannot be expected to provide with reasonable
effectiveness, scope, and equity.\24\
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\24\ Clear public benefits include promoting the integrity of
the payment system, improving the effectiveness of financial
markets, reducing the risk associated with payment and securities-
transfer services, or improving the efficiency of the payment
system. Board of Governors of the Federal Reserve System, ``Federal
Reserve in the Payment System,'' Issued 1984; revised 1990.
Available at https://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm.
---------------------------------------------------------------------------
The Board expects that, over the long run, the Reserve Banks will
be able to recover the costs associated with the extended operating
hours. Extending the operating hours for NSS and the Fedwire Funds
Service requires relatively minor technical changes and additional
staffing during the extended business day, resulting in minimal one-
time implementation costs and ongoing additional staffing costs. The
Reserve Banks anticipate recovering these costs through existing fees
charged for NSS and the Fedwire Funds Service.
The Board also expects that extending operating hours for NSS and
the Fedwire Funds Service to support a third same-day ACH window will
offer public benefits. Same-day ACH transactions are used for payroll
(especially emergency payroll), business-to-business payments, consumer
bill payments, and consumer account-to-account payments. As expressed
in the feedback received from commenters, by allowing banks to submit
same-day ACH transactions later in the business day, the third same-day
ACH window could encourage more banks (particularly those in the
mountain and Pacific time zones) to offer same-day ACH to their
customers, potentially increasing usage more broadly and resulting in
increased adoption of same-day ACH payments.\25\ Increased usage would
further advance the Federal Reserve's ongoing objective to improve the
speed and efficiency of the payment system in the United States.
Further, the Board believes that extending the operating hours for NSS
and the Fedwire Funds Service offers public benefits for reasons
unrelated to a third same-day ACH window. For example, these extended
operating hours will allow banks to offer increased availability of the
Fedwire Funds Service during the day to their customers.
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\25\ In the ACH network, RDFIs are defined as entities that
receive ACH transactions, while Originating Depository Financial
Institutions (ODFIs) are defined as those entities that originate
ACH transactions.
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The Board recognizes, however, that extending operating hours may
increase certain risks and costs for banks and their customers,
including risks and costs related to additional staffing, compression
of end-of-day processing activities, decreased availability of
extensions to operating hours, and more-frequent delays to the
reopening of the Fedwire Funds Service. As described in this notice,
the Board has approved a modification to the Reserve Banks practice of
maintaining a 2-hour window between the closing and the reopening of
the Fedwire Funds Service to maintain only a 90-minute window as well
as an increase to the Reserve Banks threshold for granting extensions
to the Fedwire Funds Service closing time from $1 billion to $3 billion
to mitigate these risks and costs.
Finally, the Board does not expect that other providers alone could
provide the enhanced services with reasonable effectiveness, scope, and
equity. TCH relies on NSS to settle its in-network ACH transactions,
including same-day ACH transactions, and so would be unable to offer a
third same-day ACH window with settlement at 6:00 p.m. ET if the
Reserve Banks did not extend the closing time of NSS.
IV. Competitive Impact Analysis
When considering changes to an existing service, the Board conducts
a competitive impact analysis to determine whether there will be a
direct and material adverse effect on the ability of other service
providers to compete effectively with the Federal Reserve in providing
similar services due to differing legal powers or the Federal Reserve's
dominant market position deriving from such legal differences.\26\ The
Board believes that there will be no adverse effects to other service
providers resulting from extending the operating hours of NSS and the
Fedwire Funds Service. As described earlier, the changes to NSS and the
Fedwire Funds Service will allow TCH, the private-sector ACH operator,
to implement the third same-day ACH window. This would promote
competitive fairness between the two ACH operators.
---------------------------------------------------------------------------
\26\ See The Federal Reserve in the Payments System (issued
1984; revised 1990), Federal Reserve Regulatory Service 9-1558.
---------------------------------------------------------------------------
V. Conclusion
As described above, the Board has approved the following
modifications and enhancements to NSS and the Fedwire Funds Service and
the Reserve Banks will implement the changes on March 19, 2021.
Additionally, the Board has approved changes to the PSR policy that
will take effect when the Reserve Banks implement the related changes
to NSS and the Fedwire Funds Service.
A. Fedwire Funds Service Operating Hours
The Fedwire Funds third-party cutoff will occur at 6:45 p.m. ET and
the closing of the Fedwire Funds Service will occur at 7:00 p.m. ET.
The opening time for the Fedwire Funds Service will remain at 9 p.m. ET
on the previous calendar day. The service will be available for
business days Monday through Friday, except for specified holidays
observed by the Reserve Banks.
B. National Settlement Service Operating Hours
The closing of the National Settlement Service will occur at 6:30
p.m. ET. The opening time for the National Settlement Service will
remain at 7:30 a.m. ET.
C. Window Between the Closing and Reopening of the Fedwire Funds
Service
The Reserve Banks will modify their current practice of maintaining
a 2-hour window between the closing and the reopening of the Fedwire
Funds Service to maintain only a 90-minute window.
D. Fedwire Funds Service Extension Threshold
The Reserve Banks will raise the threshold for granting extensions
to the Fedwire Funds Service closing time from $1 billion to $3
billion. The Reserve Banks, in consultation with the Board, will
determine whether further increases to the threshold are warranted to
maintain the regular and consistent open of the Fedwire Funds Service
at 9:00 p.m. ET.
[[Page 71946]]
E. PSR Policy
The Board is amending part II of the PSR policy to add a new 6:00
p.m. ET posting time for same-day ACH transactions, remove the current
5:30 p.m. ET posting time for ACH return transactions, and make
conforming changes to the daylight overdraft fee calculation.
VI. Federal Reserve Policy on Payment System Risk (PSR)
The Board amends part II of the PSR policy.
Revisions to Section II.A of the PSR Policy
Revise Section II.A, Opening balance (previous day's closing
balance), as follows:
A. Daylight Overdraft Definition and Measurement
* * * * *
Post by 1:00 p.m. eastern time:
+/- Commercial check transactions, including returned checks
+/- Government and commercial FedACH SameDay Service transactions,
including return items \34\
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\34\ With the exception of paper returns and paper notifications
of change (NOCs) of prior-dated items that only post at 5:00 p.m.;
paper returns of same-day forward items that only post at 6:00 p.m.;
and FedLine Web returns and FedLine Web NOCs that only post at 8:30
a.m. and 5:00 p.m., depending on when the item is received by
Reserve Banks.
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+ Same-day Treasury investments.
Post at 5:00 p.m. eastern time:
+/- Government and commercial FedACH SameDay Service transactions,
including return items \35\
---------------------------------------------------------------------------
\35\ With the exception of paper returns of same-day forward
items that only post at 6:00 p.m.
---------------------------------------------------------------------------
+ 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
Post at 5:30 p.m. eastern time:
+/- Commercial check transactions, including returned checks
Post at 6:00 p.m. eastern time:
+/- Government and commercial FedACH SameDay Service transactions,
including return items \36\
---------------------------------------------------------------------------
\36\ With the exception of paper returns and paper notifications
of change (NOCs) of prior-dated items that only post at 5:00 p.m.;
and FedLine Web returns and FedLine Web NOCs that only post at 8:30
a.m. and 5:00 p.m., depending on when the item is received by
Reserve Banks.
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* * * * *
Revisions to Section II.C of the PSR Policy
The Board will revise section II.C, paragraph 3 of the PSR policy
as follows:
C. Pricing
* * * * *
Daylight overdraft fees for uncollateralized overdrafts (or the
uncollateralized portion of a partially collateralized overdraft) are
calculated using an annual rate of 50 basis points, quoted on the basis
of a 24-hour day and a 360-day year. To obtain the effective annual
rate for the standard Fedwire operating day, the 50-basis-point annual
rate is multiplied by the fraction of a 24-hour day during which
Fedwire is scheduled to operate. For example, under a 22-hour scheduled
Fedwire operating day, the effective annual rate used to calculate
daylight overdraft fees equals 45.83 basis points (50 basis points
multiplied by 22/24).\55\ The effective daily rate is calculated by
dividing the effective annual rate by 360.\56\ An institution's daily
daylight overdraft charge is equal to the effective daily rate
multiplied by the institution's average daily uncollateralized daylight
overdraft.
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\55\ A change in the length of the scheduled Fedwire operating
day should not significantly change the amount of fees charged
because the effective daily rate is applied to average daylight
overdrafts, the calculation of which would also reflect the change
in the operating day.
\56\ Under the current 22-hour Fedwire operating day, the
effective daily daylight-overdraft rate is truncated to 0.0000127.
---------------------------------------------------------------------------
* * * * *
Revisions to Section II.F of the PSR Policy
Revise section II.F, paragraph 3 as follows:
F. Special Situations
* * * * *
Certain institutions are subject to a daylight-overdraft penalty
fee levied against the average daily daylight overdraft incurred by the
institution. These include Edge and agreement corporations, bankers'
banks that are not subject to reserve requirements, and limited-purpose
trust companies. The annual rate used to determine the daylight-
overdraft penalty fee is equal to the annual rate applicable to the
daylight overdrafts of other institutions (50 basis points) plus 100
basis points multiplied by the fraction of a 24-hour day during which
Fedwire is scheduled to operate (currently 22/24). The daily daylight-
overdraft penalty rate is calculated by dividing the annual penalty
rate by 360.\74\ The daylight-overdraft penalty rate applies to the
institution's daily average daylight overdraft in its Federal Reserve
account. The daylight-overdraft penalty rate is charged in lieu of, not
in addition to, the rate used to calculate daylight overdraft fees for
institutions described in this section.
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\74\ Under the current 22-hour Fedwire operating day, the
effective daily daylight-overdraft penalty rate is truncated to
0.0000382.
By order of the Board of Governors of the Federal Reserve
System, December 20, 2019.
Ann Misback,
Secretary of the Board.
[FR Doc. 2019-28002 Filed 12-27-19; 8:45 am]
BILLING CODE P
