[Federal Register Volume 61, Number 216 (Wednesday, November 6, 1996)]
[Notices]
[Pages 57433-57434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28355]
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FEDERAL RESERVE SYSTEM
[Docket No. R-0778]
Federal Reserve Bank Services
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice.
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SUMMARY: The Board has announced that, effective December 8, 1997, the
Fedwire on-line funds transfer service will open at 12:30 a.m. Eastern
Time five days per week (Monday through Friday). Previously, the Board
determined that expansion of the Fedwire funds transfer service to 18
hours per day could be a useful component of private-sector initiatives
to reduce settlement risk in the foreign exchange markets and to
eliminate an operational barrier to potentially important innovation in
privately-provided payment and settlement services.
EFFECTIVE DATE: December 8, 1997.
FOR FURTHER INFORMATION CONTACT: Louise Roseman, Associate Director
(202/452-2789), Jeff Stehm, Manager (202/452-2217), or Jeannine
Butcavage, Financial Services Analyst (202/452-2225), Division of
Reserve Bank Operations and Payment Systems, Board of Governors of the
Federal Reserve System. For the hearing impaired only:
Telecommunications Device for the Deaf, Dorothea Thompson (202/452-
3544).
SUPPLEMENTARY INFORMATION:
I. Background
In February 1994, the Board approved an expansion of the operating
hours for the Fedwire on-line funds transfer service to 18 hours per
day, five days per week (Monday through Friday) beginning in 1997, with
the specific implementation date to be announced approximately one year
in advance of the effective date (59 FR 8981, February 24, 1994; 60 FR
110, January 3, 1995). Beginning December 8, 1997, the Fedwire on-line
funds transfer service will open at 12:30 a.m. and close at 6:30 p.m.
Eastern Time.1, 2, 3 Participation in the earlier operating hours
is voluntary.
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\1\ The current operating hours for the Fedwire on-line funds
transfer service are 8:30 a.m. to 6:30 p.m. Eastern Time, five days
per week (Monday through Friday).
2 All times referenced are Eastern Time unless otherwise
noted.
3 The earlier opening of the Fedwire on-line funds transfer
service will not affect the opening time for the origination of and
telephone advice of credit for Fedwire off-line funds transfers.
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A 12:30 a.m. Fedwire opening time will overlap the entire European
banking day and about two and one-half hours of the banking day in
Tokyo. The Board believes that overlaps in operating hours among major
financial centers will contribute to strengthened interbank settlement
for cross-border markets. The closing time for the Fedwire funds
transfer service will remain at 6:30 p.m. As discussed at length in the
Board's February 1994 decision, the Board believes that the long-run
benefits from offering final payment capabilities will strengthen
interbank settlements and contribute to reductions in foreign exchange
settlement risk through innovations in payment and settlement
practices. In addition, the Fedwire funds transfer service will be an
important tool for managing settlement risk early in the day during
times of financial stress.
II. Implementation
A. Funds Transfer Business Day
With the earlier opening time of the Fedwire funds transfer system,
the Federal Reserve Banks' funds transfer business day for on-line
transfers will begin with the opening of the Fedwire funds transfer
system at 12:30 a.m. and end with its closing (typically 6:30
[[Page 57434]]
p.m.), Monday through Friday, except for specified holidays observed by
the Federal Reserve Banks.4 For transfers originated during the
very early hours, the Federal Reserve's funds transfer business day may
differ from the calendar day on which a Fedwire participant sends or
receives the transfer. For example, in the expanded operating hours
environment, when a West Coast bank originates a Fedwire funds transfer
on Tuesday at 10:00 p.m. Pacific Time (1:00 a.m. on Wednesday Eastern
Time), its Federal Reserve Bank will deem that transfer to have
occurred on its Wednesday funds transfer business day.
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\4\ Uniform Commercial Code Article 4A-106(a) states that a
receiving bank may fix a cut-off time(s) on a funds transfer
business day for the receipt and processing of payment orders, and
treat payment orders received after the close of a funds transfer
business day as received at the opening of the next funds transfer
business day.
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B. Opening Time Considerations
While the Federal Reserve will establish 12:30 a.m. as the standard
opening time for the Fedwire funds transfer service, lengthy extensions
to the closing time on the previous day could delay the 12:30 a.m.
opening for the next business day. The Federal Reserve, therefore, will
limit lengthy closing time extensions of the Fedwire funds transfer
system to only those necessary to prevent significant market
disruptions.
C. Notification of Participation
Some Fedwire participants have indicated to their Federal Reserve
Banks that they would find useful a listing of depository institutions
that plan to participate during the earlier hours. Participants stated
that this information would help them to decide whether it would be
beneficial to use their intraday liquidity to initiate certain Fedwire
funds transfers during the earlier hours. To accommodate this request,
the Federal Reserve will provide a list of earlier hour participants.
This list will be updated regularly.
The list of earlier hour participants will not be restrictive;
consequently, depository institutions will be permitted to send on-line
funds transfers during the earlier hours even if they are not on the
Federal Reserve's list of participants. All depository institutions
will receive any funds transfers sent to them during the earlier hours
whether or not they choose to participate in the earlier hours.
D. Fees for Transfers Made During Earlier Hours
During the 12:30 a.m. to 8:30 a.m. period, transaction fees for
Fedwire funds transfers will be charged at the same level and in the
same manner as transfers made during the 8:30 a.m. to 6:30 p.m. regular
business hours.
E. Intraday Credit
Federal Reserve intraday credit will be provided to Fedwire
participants during the 12:30 a.m. to 8:30 a.m. period on the same
basis that such credit is provided after 8:30 a.m. That is, eligible
institutions may incur intraday overdrafts subject to the requirements
of the Board's payment system risk policy. To adjust for the additional
operating hours during the day, daylight overdraft fees for all Fedwire
participants will be calculated based on an 18-hour Fedwire day rather
than a 10-hour Fedwire day.5
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\5\ An institution's overdraft charges are calculated daily and
equal the gross overdraft charge less the amount of a deductible.
The gross overdraft charge is the product of the nominal daily
overdraft rate and the average overdraft. Because the nominal daily
rate is based on the portion of the day that the Fedwire funds
transfer system is open, the nominal daily rate will increase with
an 18-hour day. However, the average overdraft calculated for a
longer Fedwire day will correspondingly decrease for a given level
of total overdrafts. Based on the current daylight overdraft rate,
the annual rate will increase from 15 basis points for a 10-hour
Fedwire day to 27 basis points for an 18-hour Fedwire day. At the
same time, the number of minutes used to average end-of-minute
overdrafts will increase from 601 to 1081. The deductible is equal
to 10 percent of an institution's qualifying capital valued at an
effective daily rate that will be fixed at 10 of 24 hours. This
issue was addressed at length in the Board's 1992 announcement of
daylight overdraft fees (57 FR 47084, October 14, 1992).
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Posting times for some non-wire transactions are tied to the
opening of the Fedwire funds transfer system.6 In order not to
change the current effective posting times of these transactions, the
Board's posting rules have been modified to continue to post these
transactions at 8:30 a.m. Interest and redemption payments on U.S.
Treasury and Government agency securities generally will be posted
between 8:30 a.m. and 9:15 a.m.7
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\6\ Specifically, these transactions include ACH credit
transactions, advance notice Treasury investments, interest and
redemption payments on state and local government series Treasury
securities, and Treasury checks, postal money orders, local Reserve
Bank checks, and EZ-Clear savings bond redemptions deposited by
12:01 a.m. or a later local deadline.
\7\ The posting rules indicate that these transactions will be
posted ``by 9:15 a.m.''
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F. Policy Statement Changes
As discussed above, the Board has adopted minor changes to the
``Federal Reserve Policy Statement on Payments System Risk,'' effective
December 8, 1997. In section (I)(A) (Federal Reserve Policy--Daylight
Overdraft Definition), in the table labeled ``Modified Procedures for
Measuring Daylight Overdrafts,'' the heading ``Post at the Opening of
Fedwire Funds Transfer System'' is revised to read ``Post at 8:30 a.m.
Eastern Time''. In section (I)(B) (Federal Reserve Policy--Pricing),
the third sentence of the second paragraph is revised to read ``For
example, under an 18-hour scheduled Fedwire operating day, the
overdraft fee equals 27 basis points (36 basis points multiplied by 18/
24).''
By order of the Board of Governors of the Federal Reserve
System, October 30, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-28355 Filed 11-5-96; 8:45 am]
BILLING CODE 6210-01-P
