Fed payment system risk policy changes affecting FBO branches effective in 2020

Changes to the portion of the Federal Reserve’s payment system risk policy that relates to U.S. branches or agencies of foreign banking organizations (FBOs) are slated for publication in the Federal Register Monday with an effective date of April 1, 2020.

The Fed’s policy statement changes focus on procedures for determining the net debit cap and maximum daylight overdraft capacity of a U.S. branch or agency of an FBO. The changes remove references to the Strength of Support Assessment (“SOSA”) ranking; remove references to FBOs’ financial holding company (“FHC”) status; and adopt alternative methods for determining an FBO’s eligibility for a positive net debit cap, the size of its net debit cap, and its eligibility to request a streamlined procedure to obtain maximum daylight overdraft capacity.

The Fed’s policy changes affect Part II of the Policy on Payment System Risk, which establishes the maximum levels of daylight overdrafts that depository institutions may incur in their Federal Reserve accounts. Under Part II, an FBO’s SOSA ranking – which assesses an FBO’s ability to provide financial, liquidity, and management support to its U.S. operations – can affect an FBO’s daylight overdraft capacity. Similarly, an FBO’s status as an FHC can affect its daylight overdraft capacity.

On Dec. 14, 2017, the Fed Board proposed to (1) remove references in the PSR policy to SOSA rankings and FHC status and (2) adopt alternative methods for determining an FBO’s daylight overdraft capacity.

The Fed said it received one responsive comment provided by an association of international banks. The Fed adopted the proposed changes substantially as proposed, with two exceptions: it (1) replaced the term “equivalent PCA designation” (related to the creditworthiness self-assessment) with “FBO PSR capital category”; and (2) clarified the manner in which an FBO will determine its FBO PSR capital category. It also set the effective date for one year following publication in the Federal Register.

Federal Reserve Policy on Payment System Risk; U.S. Branches and Agencies of Foreign Banking Organizations

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