Proposal would change method for determining daylight overdraft levels at foreign banking organizations

A proposal to refine methods for determining the levels of intraday credit U.S. branches and agencies of foreign banking organizations (FBOs) can receive from Federal Reserve Banks was approved for a 60-day comment period Monday by the central bank.

In its proposal, the Fed points out that its policy (outlined in the Payment System Risk Policy (PSR)) generally apply to both U.S. institutions and the FBOs. However, the Fed stated in a release, procedures for determining the level of intraday credit (also known as “daylight overdrafts”) that the FBOs may receive from Federal Reserve Banks can differ.

“While the procedures are different for FBOs, the PSR policy relies on an FBO’s strength of support assessment (SOSA) ranking and its status as a financial holding company (FHC) to determine the level of intraday credit that U.S. branches and agencies of the FBO can receive from the Federal Reserve Banks,” the Fed stated.

Under the proposal, the SOSA ranking will be eliminated. Additionally, the Fed stated, it believes “that an FBO’s status as an FHC should not affect the FBO’s access to intraday credit.”

Instead, the Fed is proposing alternative methods for determining and FBO’s level of daylight overdrafts – which includes the FBO’s resulting net debit caps, which the Fed said its believes “would be better tailored to FBOs’ use of intraday credit and would not constrain FBOs’ U.S. operations.”

Federal Reserve Board requests comment on proposed changes to the Payment System Risk Policy