[Federal Register Volume 59, Number 92 (Friday, May 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11646]
[[Page Unknown]]
[Federal Register: May 13, 1994]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
Interpretation of the Payments System Risk Reduction Policy;
Daylight Overdrafts of Government-Sponsored Enterprises
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interpretation.
-----------------------------------------------------------------------
SUMMARY: As part of its payments system risk reduction program, the
Board is adopting an interpretation of its Policy Statement on Payments
System Risk. Under the payments system risk reduction program,
government-sponsored enterprises that maintain accounts at Reserve
Banks should not incur daylight overdrafts in these accounts and are
not permitted to adopt a positive daylight overdraft net debit cap.
Furthermore, the Board interprets the Policy Statement on Payments
System Risk to include government-sponsored enterprises under the
policy on daylight overdraft fees. Until October 13, 1994, fees on
daylight overdrafts in accounts of government-sponsored enterprises
will be waived. A temporary exemption from daylight overdraft fees is
granted for daylight overdrafts in principal and interest accounts of
government-sponsored enterprises. This interpretation supports the
Board's payments system risk reduction program by providing a
comprehensive policy towards daylight overdrafts incurred by
government-sponsored enterprises while at the same time recognizing the
unique nature of the fiscal agency relationship between the Federal
Reserve and these entities.
DATES: Effective April 28, 1994.
FOR FURTHER INFORMATION CONTACT: Jeffrey C. Marquardt, Assistant
Director (202/452-2360), Paul Bettge, Manager (202/452-3174), Division
of Reserve Bank Operations and Payment Systems; Stephanie Martin,
Senior Attorney (202/452-3198), Legal Division; for the hearing
impaired only: Telecommunications Device for the Deaf, Dorothea
Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION:
Background
The term ``government-sponsored enterprise'' (GSE) is generally
used to refer to corporations chartered by Congress to perform certain
financial market functions deemed to be in the public interest. These
entities include, but are not limited to, the Federal National Mortgage
Association (Fannie Mae), the Federal Home Loan Mortgage Corporation
(Freddie Mac), the Student Loan Marketing Association (Sallie Mae), and
entities of the Federal Home Loan Bank System and the Farm Credit
System. These GSEs are owned by private shareholders and their
obligations are not guaranteed by the U.S. government.
Congress authorized the Reserve Banks to act as depositaries,
custodians, and fiscal agents for these entities. Under agreements with
the GSEs, the Reserve Banks issue and redeem the GSEs' debt and asset-
backed securities over the Fedwire system, in addition to providing
other payment services generally related to these fiscal agency
services.
The Board's payments system risk (PSR) policies and guidelines have
addressed daylight overdrafts by government-sponsored enterprises that
maintain accounts with Federal Reserve Banks only in certain limited
instances. In 1985, the Board determined that Federal Home Loan Banks
should not be allowed a positive net debit cap and should be
discouraged from incurring daylight overdrafts in their accounts with
the Reserve Banks. In June 1986, the Board similarly determined that
the Farm Credit System Banks should be discouraged from incurring
overdrafts.
The Board has never addressed daylight overdrafts of other GSEs,
including those for which the Reserve Banks act as fiscal agents in
issuing and redeeming their securities. Further, when the Board
approved in 1992 the policy of charging fees for daylight overdrafts
beginning in April 1994, it did not address the question of whether
GSEs would be subject to the fees. However, the policy did not exclude
GSEs or any other class of account-holders from the fees.1 In
addition, in 1994, the Board adopted a penalty fee for daylight
overdraft incurred by institutions that do not have regular discount
window access, although GSEs were not included in this penalty fee
policy.
---------------------------------------------------------------------------
\1\The Board's policy statement on daylight overdraft fees
states that ``each Reserve Bank will charge a fee for average daily
daylight overdrafts in Federal Reserve accounts [emphasis added].''
---------------------------------------------------------------------------
The Federal Reserve is not obligated to provide intraday credit to
the GSEs in the form of daylight overdrafts as part of its fiscal
agency functions; indeed, the GSEs have generally agreed not to incur
overdrafts in their accounts. However, many of the GSEs have
nonetheless incurred daylight overdrafts. The Board believes that, with
the advent of daylight overdraft fees for depository institutions on
April 14, 1994, it is particularly important that the GSEs not be
permitted unlimited free access to intraday Federal Reserve credit.
Such access would represent a benefit not available to depository
institutions and could serve to undermine the Board's payment system
risk reduction program.
As a result, the Board interprets the Policy Statement on Payments
System Risk to include GSEs under the policy on daylight overdraft
fees. In addition, the Board has determined that a capital-based fee
deductible, as permitted for depository institutions, will not be
permitted for the GSEs. These entities do not have regular access to
the discount window and should not be permitted the same access to
intraday credit as depository institutions. However, because a number
of these entities have not been formally subject to the PSR policy in
the past and have not previously been explicitly advised that daylight
overdraft fees would apply to their accounts, the Board has determined
that they should be afforded some period within which to make the
necessary adjustments to their payment systems and practices. As a
result, daylight overdraft fees for daylight overdrafts in GSEs'
accounts will be waived until October 13, 1994.
Furthermore, the Board recognizes that, in large part, the GSEs'
daylight overdrafts are related to regular payments of principal and
interest (P&I) on securities that they issue through the Federal
Reserve. These payments are initiated by the Reserve Banks, and the
Federal Reserve's daylight overdraft posting rules specify that these
payments will be made before 9:15 a.m. Eastern time. These posting
times were primarily designed to grant depository institutions the
benefit of P&I payments prior to debits being made to their accounts
from their purchases of new issues of government securities. The GSEs
typically do not fund debits to their accounts resulting from P&I
payments until they issue new securities later in the day, causing
daylight overdrafts in their Federal Reserve accounts.
To eliminate these daylight overdrafts, the Reserve Banks could
delay making P&I payments on the GSEs' securities until sufficient
funds were available in their accounts. This would likely require that
the P&I payments be made later in the day. Delaying the P&I payments
might increase the magnitude and duration of daylight overdrafts for
the depository institutions that receive the corresponding credits.
For this reason, the Board is permitting a temporary exemption of
overdrafts incurred in GSEs' P&I accounts (special accounts which are
used only for the payment of principal and interest), until the
potential benefits and drawbacks of shifting the timing of P&I payments
can be analyzed. This analysis will be performed once the initial
impact of daylight overdraft fees on depository institutions has been
assessed. In addition, the Board has not ruled out future application
of the daylight overdraft penalty fee to GSEs' daylight overdrafts.
Interpretation of the Policy Statement on Payments System Risk
Under the Board's payments system risk reduction program,
government-sponsored enterprises that maintain accounts at Reserve
Banks should not incur daylight overdrafts in these accounts and are
not permitted to adopt a positive daylight overdraft net debit cap.
Furthermore, the Board interprets the Policy Statement on Payments
System Risk to include government-sponsored enterprises under the
policy on daylight overdraft fees. A capital-based fee deductible is
not permitted for government-sponsored enterprises. However, a
temporary exemption from daylight overdraft fees is granted for
daylight overdrafts in principal and interest accounts of government-
sponsored enterprises. Fees on daylight overdrafts in accounts of
government-sponsored enterprises will be waived until October 13, 1994.
By order of the Board of Governors of the Federal Reserve
System, May 9, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-11646 Filed 5-12-94; 8:45 am]
BILLING CODE 6210-01-P
