Rule changes methods for determining level of intraday credit branches, agencies of FBOs can receive from Federal Reserve banks

Changes to refine the methods for determining the level of intraday credit that U.S. branches and agencies of foreign banking organizations (FBOs) and agencies can receive from the Federal Reserve Banks were announced Wednesday by the central bank.

The changes, which take effect April 1, 2020, include elimination of the “strength of support assessment” (SOSA) rankings, and a branch or agency’s status as a financial holding company (FHC), which have been used to gauge the levels of intraday credit that can be received.

The Federal Reserve Board’s revised policy statement addresses changes to procedures governing the provision of intraday credit to the branches and agencies. The procedures are laid out in the Fed’s Payment System Risk Policy (PSR policy), which governs the provision of intraday credit (or daylight overdrafts) in accounts at the Reserve Banks.

“The PSR policy recognizes that the Federal Reserve has an important role in providing intraday balances and credit to foster the smooth functioning of the overall payment system and also seeks to control the risks assumed by the Reserve Banks in providing this intraday credit, which is made available to meet temporary needs at healthy depository institutions,” the Fed said.

The Fed pointed out that certain procedures for determining the level of intraday credit that FBOs can receive from the Federal Reserve Banks differ (although intraday credit provisions generally apply similarly to FBOs and U.S. institutions). The agency said that, where 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 noted that it has announced that the SOSA ranking will be eliminated; additionally, the Board believes that an FBO’s status as an FHC should not affect the FBO’s access to intraday credit.

“With this rulemaking, the Board is removing references to SOSA and an FBO’s FHC status while adopting alternative methods for determining FBOs’ eligibility for positive net debit cap, the size of the net debit cap, and its eligibility to request a streamlined procedure to obtain maximum daylight overdraft capacity,” the Fed said in a release. “The Board believes that FBOs’ resulting net debit caps will be better tailored to FBOs’ use of intraday credit and will not constrain FBOs’ U.S. operations.”

Federal Reserve Board announces changes to its Payment System Risk Policy regarding intraday credit to U.S. branches and agencies of foreign banking organizations

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