The Federal Reserve Board (Fed) is seeking comments on a potential change in its payment system risk (PSR) policy to provide for real-time monitoring by the Federal Reserve Banks of all depository institutions’ Fedwire funds transfers. The change would allow the Fed banks to reject transfers that would breach a sender’s net debit cap, the goal being to mitigate system risk.
The Reserve Banks have had a voluntary, no-cost pilot program in place since Oct. 2, 2017, for real-time monitoring of Fedwire fund transfers by institutions with total assets under $50 billion. The Fed Board, reviewing intraday credit policies related to real-time monitoring, is exploring the potential benefits that expanded real-time monitoring for Fedwire funds may have in reducing the risk that payments activity, including errant or fraudulent payments, poses to any institution that maintains a Federal Reserve account.
“A risk-focused expansion in the use of the real-time monitor may provide additional account protection against mismanagement or misuse of payment services and could help mitigate risks for both institutions and the Reserve Banks,” the Fed said in a notice scheduled to be published Monday in the Federal Register.
The potential change would amend the PSR policy to apply real-time monitoring as a mandatory practice for all institutions, regardless of total asset size, and would apply only to institutions’ outgoing Fedwire funds transfers. Comments will be accepted for 60 days following the notice’s publication in the Register. If the board decides to move forward with its policy change, it says it will issue a more specific proposal in the future for notice and comment.
The Fed is seeking input on a series of issues, including benefits and drawbacks of real-time monitoring to institutions’ operations and funding (and how the program could mitigate the drawbacks); whether it would lead to significantly greater payment delays or would affect the way institutions manage their Federal Reserve accounts with respect to daylight overdrafts; if institutions would responding by seeking higher net debit caps to avoid rejections; and more.
This proposal is narrower than a 2001 proposal that would have affected all transactions, including National Settlement Service (NSS) transactions. That proposal would have required institutions to prefund their automated clearinghouse (ACH) credit originations. Commenters said that would be burdensome and could disrupt the payment system. The Fed has made system changes since then that allow more selective monitoring and notes improvements also in the way institutions manage transaction risk.