Expanded access to collateralized intraday credit – to provide greater clarity to banks, streamline administrative requirements, and support the launch next year of the new FedNow service – are the aims of Federal Reserve updates to its payment system risk (PSR) policy, announced Friday by the central bank.
The Fed said the updates provide clarifying and technical updates to the PSR policy, which governs the provision of intraday credit to healthy depository institutions with accounts at Federal Reserve Banks. The Fed said the updates it adopted are substantially similar to a proposal issued in May.
In a release, the Fed noted that the PSR policy establishes limits on the amount of a bank’s uncollateralized intraday credit and allows certain institutions to request additional collateralized credit. “To ensure the smooth functioning of payment and settlement systems, Reserve Banks provide temporary intraday credit to a healthy depository institution when its account has a negative balance during the business day,” the Fed stated.
Key aspects of the final updates, the Fed said, include expanded eligibility of institutions to request collateralized intraday credit and reduce the required administrative steps; and clarified eligibility standards for accessing uncollateralized intraday credit.
The changes in the updates to support the launch of the new FedNow service (expected to be rolled out between May and June of next year) include redefining the term “business day” to reflect FedNow’s round-the-clock (expressed by the Fed as “24x7x365”) operations. The final updates also simplify and incorporate the related overnight overdrafts policy into the PSR policy, the Fed said.
Updates related to the deployment of FedNow and the overdrafts policy, the Fed said, will become effective when Reserve Banks begin processing live transactions for FedNow. The remaining updates are effective 60 days after publication in the Federal Register, the agency said.