[Federal Register Volume 73, Number 46 (Friday, March 7, 2008)]
[Notices]
[Pages 12443-12448]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-4183]


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FEDERAL RESERVE SYSTEM

[Docket No. OP-1310]


Policy on Payments System Risk; Daylight Overdraft Posting Rules

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Policy statement; Request for comments.

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SUMMARY: Commercial and government automated clearinghouse (ACH) credit 
transfers processed by the Federal Reserve Banks' (Reserve Banks) 
FedACH service are currently posted at 8:30 a.m., while commercial and 
government ACH debit transfers are posted at 11 a.m.\1\ The Board 
proposes to change the posting time for commercial and government ACH 
debit transfers that are processed by the Reserve Banks' FedACH service 
to 8:30 a.m. to coincide with the posting time for commercial and 
government ACH credit transfers. In line with this change, the Board 
also intends, in consultation with the U.S. Treasury, to move the 
posting time for Treasury Tax and Loan (TT&L) investments associated 
with Electronic Federal Tax Payment System (EFTPS) ACH debit transfers 
to 8:30 a.m. to maintain the simultaneous posting of ACH transactions 
and related Treasury transactions.
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    \1\ The credit and debit accounting entries associated with ACH 
credit transfers and ACH debit transfers are posted simultaneously 
at the appointed posting time.
    All times are eastern time.

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DATES: Comments must be received on or before June 4, 2008.

ADDRESSES: You may submit comments, identified by Docket No. OP-1310 by 
any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: http://regs.comments@federalreserve.gov. Include 
the docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Jennifer J. Johnson, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue, NW., Washington, DC 20551.
    All public comments will be made available on the Board's Web site 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
MP-500 of the Board's Martin Building (20th and C Streets, NW.) between 
9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Jeffrey Marquardt, Deputy Director 
(202-452-2360) or Susan Foley, Assistant Director (202-452-3596), 
Division of Reserve Bank Operations and Payment Systems, Board of 
Governors of the Federal Reserve System; for users of 
Telecommunications Device for the Deaf (``TDD'') only, contact (202) 
263-4869.

SUPPLEMENTARY INFORMATION:

I. Background

    The Board has been reviewing for several years long-term 
developments in intraday liquidity and risk management in financial 
markets and the payments system, including increased use of daylight 
overdrafts at the Reserve Banks and increased Fedwire funds transfers 
late in the day. On June 21, 2006, the Board published for public 
comment the Consultation Paper on Intraday Liquidity Management and the 
Payments System Risk Policy (consultation paper) that sought 
information from financial institutions and other interested parties on 
their experience in managing liquidity, credit, and operational risks 
related to Fedwire funds transfers, especially late-day transfers.\2\ 
The Board sought comment on possible changes in market practices, 
operations, and the Federal Reserve's PSR policy that could reduce one 
or more of these risks.
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    \2\ See 71 FR 35679, June 21, 2006.
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    One commenter on the consultation paper suggested a change in the 
posting rules for ACH debit transfers to reduce depository 
institutions' need for intraday liquidity from Reserve Banks.\3\ This 
institution proposed that ACH credit and debit transfers post 
simultaneously to institutions' Federal Reserve accounts so that only 
the net amount of funds from daily ACH settlements would increase or 
decrease balances held in these accounts. The Reserve Banks' Retail 
Payments Office, which has primary responsibility for the Reserve 
Banks' FedACH service, has also indicated a preference for the 
simultaneous posting of ACH credit and debit transfers at 8:30 a.m., 
the same time as EPN, the other ACH operator. This change would remove 
competitive disparities between these systems or their participants 
arising from different settlement times for ACH debit transfers.
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    \3\ The term ``depository institution,'' as used in this notice, 
refers not only to institutions defined as depository institutions 
in 12 U.S.C. 461(b)(1)(A), but also to U.S. branches and agencies of 
foreign banking organizations, Edge and agreement corporations, 
trust companies, and bankers' banks, unless the context indicates a 
different reading.
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    In addition to proposing the change to the posting rules for ACH 
debit transfers, the Board also intends, in consultation with the U.S. 
Treasury, to move the posting of TT&L investments

[[Page 12444]]

associated with EFTPS ACH debit transfers to 8:30 a.m. The U.S. 
Treasury uses TT&L to collect taxes and invest excess Treasury balances 
with depository institutions, including EFTPS tax payments collected 
through both ACH credit and debit transfers. For example, the Internal 
Revenue Service initiates daily, through its agent, ACH debit transfers 
to collect tax payments due from taxpayers. The tax payments collected 
in this manner and through ACH credit transfers are credited to the 
U.S. Treasury's general account at the Reserve Banks. Under the 
Treasury Investment Program, these tax payments are then invested with 
predetermined depository institutions through TT&L. The depository 
institutions that obtain these investments receive a credit to their 
Federal Reserve accounts for the amount of EFTPS tax payments settled 
via ACH on a given day if investment capacity exists at the depository 
institution. The TT&L transactions are currently posted at the same 
time as their respective ACH credit and debit transfers, at 8:30 a.m. 
and 11 a.m. The simultaneous posting for the collection and investment 
of these tax payments is intended to minimize the effect of the daily 
tax collection on aggregate reserve balances of the banking system. The 
Board would shift the posting of TT&L investments associated with EFTPS 
ACH debit transfers to the same time as ACH debit transfers to continue 
to minimize the effect of fluctuations in government receipts on the 
intraday reserve balances of the banking industry.
    The Board has issued a separate request for comment to address the 
broader policy changes raised in the consultation paper.\4\ The broader 
policy changes include adopting a policy of supplying intraday balances 
predominately through explicitly collateralized daylight overdrafts to 
healthy depository institutions at a zero fee. The Board would allow 
depository institutions to pledge collateral voluntarily to secure 
daylight overdrafts and would encourage the voluntary pledging of 
collateral to cover daylight overdrafts by raising the fee for 
uncollateralized daylight overdrafts to 50 basis points (annual rate) 
from the current 36 basis points. In addition, the Board proposes to 
change other related policy provisions, including adjusting net debit 
caps, streamlining maximum daylight overdraft capacity procedures for 
certain foreign banking organizations, eliminating the current 
deductible, increasing substantially the fee waiver to $150, and 
increasing the penalty fee for ineligible institutions to 150 basis 
points (annual rate) from the current 136 basis points.
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    \4\ See notice elsewhere in today's Federal Register.
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    The Board believes that the broader proposed PSR policy changes 
could be implemented approximately two years from the announcement of a 
final rule. The Board believes, however, that the posting-rule change 
could be implemented in less than two years and thus has analyzed the 
change under both the current and proposed PSR policy regimes.

II. Discussion of Possible Changes

    The Board proposes to change the posting time for commercial and 
government ACH debit transfers that are processed by the Reserve Banks' 
FedACH service from 11 a.m. to 8:30 a.m. to coincide with the posting 
of commercial and government ACH credit transfers. In line with such a 
change, the Board also intends, in consultation with the U.S. Treasury, 
to move the posting of TT&L investments associated with EFTPS ACH debit 
transfers to 8:30 a.m. to maintain the simultaneous posting of these 
related transactions.
    Posting ACH debit transfers at 8:30 a.m. would
     Increase significantly the liquidity of institutions that 
originate a large value of ACH debit transfers over the FedACH network 
\5\
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    \5\ Liquidity refers to balances available in Federal Reserve 
accounts to make payments. An increase in liquidity involves higher 
account balances, which could result in fewer daylight overdrafts.
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     Increase liquidity for institutions that originate ACH 
debit transfers over the EPN network but have transfers delivered to 
receiving depository institutions over the FedACH network (inter-
operator transactions);
     Align the Reserve Banks' FedACH settlement times with 
those of its private-sector competitor; and
     Conform more closely to the Board's guidelines for 
measuring daylight overdrafts.
    For institutions that originate a large value of ACH debit 
transfers, the liquidity needed to fund the settlement of ACH credit 
originations at 8:30 a.m. could be largely or entirely offset by the 
receipt of funds from the settlement of ACH debit transfers also at 
8:30 a.m. In particular, the current posting rules require that these 
institutions obtain funding by 8:30 a.m. for ACH credit transfers that 
would not be needed if the ACH credit and debit transfers posted 
simultaneously. In addition, these originating institutions may be able 
to offer earlier funds availability to their customers from ACH debit 
transfers, reducing competitive differences among depository 
institutions because of the later settlement of ACH debit transfers 
processed by the Reserve Banks' FedACH service. Five percent, or 
approximately 160, of FedACH participants would benefit from earlier 
posting of ACH debit transfers as net receivers of funds from ACH debit 
transfers.\6\ For these institutions as a group, the effect of the 
later posting of ACH debit transfers is significant because the value 
of institutions' transactions represents approximately 70 percent of 
the ACH debit transfer value originated over FedACH. In addition, the 
Reserve Banks' competitor's practice of earlier settlement of ACH debit 
transfers may provide a more attractive service relative to FedACH's 
current 11 a.m. settlement of ACH debit transfers.
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    \6\ All data presented in the notice are from the fourth-quarter 
2007 and reflect activity at the master account level. In addition, 
the data represent the cumulative effect of posting ACH debit 
transactions and TT&L investments associated with EFTPS ACH debit 
transactions at 8:30 a.m.
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    Beyond benefits to depository institutions that originate a large 
value of debit transfers over the FedACH network, an earlier posting 
time for ACH debit transfers would also benefit certain originators of 
ACH debit transfers over the EPN network. Approximately 45 percent of 
the volume of debit transfers originated over the EPN network are 
delivered to receiving depository institutions over FedACH via inter-
operator transactions. These inter-operator transactions are posted to 
the Federal Reserve accounts of the originating and receiving 
institutions according to the Board's posting rules for the underlying 
ACH transfers. The posting-rule change would shift the settlement time 
for inter-operator ACH debit transfers originated through EPN such that 
all ACH debit transfers would settle at 8:30 a.m. regardless of the 
operator where the transfer is originated.
    The Reserve Banks' Retail Payments Office has indicated a 
preference for the simultaneous posting of ACH credit and debit 
transfers at 8:30 a.m. in order to align the settlement time for FedACH 
with the settlement time for EPN. EPN settles both ACH credit and debit 
transfers at 8:30 a.m. through the Reserve Banks' National Settlement 
Service.\7\ The Retail Payments Office is

[[Page 12445]]

increasingly concerned that the later posting of ACH debit transfers is 
or could become a consideration when originating institutions choose an 
ACH operator. The choice of operators could have significant revenue 
implications for Reserve Banks considering the recent growth in ACH 
debit transfers. Available data indicate aggregate ACH debit transfer 
volume has grown at a 28 percent annualized rate between 2003 and 
2006.\8\ The Retail Payments Office has already received some feedback 
that settlement times have affected some customers' decisions in 
choosing an operator for origination.
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    \7\ The Reserve Banks' National Settlement Service is a 
multilateral settlement service offered to depository institutions 
that settle for participants in clearinghouses, financial exchanges, 
and other clearing and settlement groups. Settlement agents acting 
on behalf of those depository institutions electronically submit 
settlement files to the Reserve Bank. Based on the settlement file, 
entries are automatically posted to the depository institutions' 
Reserve Bank accounts. These entries are final and irrevocable when 
posted.
    \8\ See the 2007 Federal Reserve Payments Study at http://
www.frbservices.org/files/communications/pdf/research/2007_
payments_study.pdf, p. 17.
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    Finally, the Board evaluated the requested posting-time change 
against its principles for measuring daylight overdrafts. In the early 
1990s, the Board formulated a set of principles that guided the 
development of the posting rules to measure daylight overdrafts.
    These principles are still relevant:
     The measurement procedures should not provide intraday 
float to participants.
     The measurement procedures should reflect the time at 
which payor institutions are obligated to pay for transactions.
     The users of payments services should be able to control 
their use of intraday credit.
     The Reserve Banks should not obtain any competitive 
advantage from the measurement procedures.
    The posting rules do not currently provide intraday float because 
the credit and debit accounting entries for ACH credit and debit 
transfers are posted simultaneously at 8:30 a.m. and 11 a.m., 
respectively. This principle would be maintained if the posting of ACH 
debit transfers were made at 8:30 a.m.
    The earlier posting at 8:30 a.m. of ACH debit transfers, however, 
would conform more closely to the second principle, which indicates 
that posting times should reflect the time at which the payor 
institution is obligated to pay for the transaction. This principle's 
purpose is to have the intraday measurement of account balances, and 
hence, posting times reflect as closely as possible the delivery of 
payments to the receiving institution. FedACH payments are processed in 
the early morning hours, usually between 2 and 4 a.m., and payment 
advices are sent to depository institutions generally by 6 a.m. Posting 
ACH debit transfers at 8:30 a.m. would shift the settlement time closer 
to the payment delivery time. The Board did contemplate the benefits 
and drawbacks of posting ACH credit and debit transfers closer to 6 
a.m. but decided a posting earlier than 8:30 a.m. would create 
additional operating costs and funding burdens for many institutions, 
especially smaller institutions, and would not be consistent with the 
practices of the other ACH operator.
    The third principle specifies that users of intraday credit should 
have control over their daylight overdrafts. This principle's intent is 
to ensure that institutions can actively manage their Federal Reserve 
accounts to comply with limits and other restrictions related to 
daylight overdrafts. It is this principle that underpins the current 
posting time of 11 a.m.
    In preparation for charging fees for daylight overdrafts in 1994, 
the Board requested comment on measuring daylight overdrafts. \9\ The 
Board proposed posting ACH credits at the opening of Fedwire, which at 
that time was 8:30 a.m. for the Fedwire funds transfer system, and 
posting ACH debits at 11 a.m. In response to that proposal, 80 percent 
of commenters opposed the posting time of 11 a.m. for ACH debits and 
requested a posting at the opening of the Fedwire day for account 
management and funding purposes. Specifically, commenters complained 
that an 11 a.m. posting time would delay funds availability to 
originators of ACH debit transfers. These commenters, however, 
recognized that while some institutions would benefit from having 
additional funds from the ACH debit transfers available earlier in the 
day, other institutions would have fewer funds available.
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    \9\ The two requests for comment on measuring daylight 
overdrafts are 54 FR 26094, June 21, 1989, and 56 FR 3098, January 
28, 1991. The final rulemaking is 57 FR 47093, October 14, 1992.
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    The effect of the earlier posting time on those that would have 
fewer funds available influenced the Board in its decision to keep a 
later posting time for ACH debit transfers. The Board noted that the 
``receiver of ACH debit transactions cannot predict with certainty the 
value of transactions that they will receive on certain days. In order 
to avoid incurring overdrafts, receiving institutions need some time 
after the opening of Fedwire to obtain funding for payments before 
their accounts are debited.'' Since then, the operating day for the 
Fedwire funds transfer system has been extended to open at 9 p.m. the 
previous evening. Institutions currently have the operational ability 
to transfer funds into their accounts as soon as FedACH makes available 
the settlement amounts associated with the ACH transfers, typically 
before 6 a.m. As a practical matter, however, few institutions 
currently use Fedwire services before 8:30 a.m. Thus, the Board 
recognizes that this proposed change to the posting rules could prompt 
some depository institutions to maintain higher account balances 
overnight, incur (greater) daylight overdrafts, or bring staff in 
earlier to manage their Reserve Bank account balances. As discussed 
later, up to approximately 170 institutions that are eligible to incur 
daylight overdrafts could incur higher daylight overdraft fees if 
funding patterns remained the same, while about 35 institutions that 
are not eligible to incur daylight overdrafts would need to make 
arrangements to hold higher account balances overnight or to obtain 
funding earlier. While the Board has estimated the possible increase in 
daylight overdraft fees, it is not clear how difficult or costly 
changing funding patterns would be for these institutions to avoid 
incurring (additional) daylight overdrafts.
    Finally, the Board's fourth principle-that the posting rules should 
not provide Reserve Banks with a competitive advantage-would be upheld. 
Shifting the posting of ACH debit transfers to 8:30 a.m. would serve to 
bring the settlement of ACH debit transfers processed by the Reserve 
Banks' FedACH service in line with its private-sector competitor and 
reduce a possible competitive disadvantage to the Reserve Banks. >
    While the posting-rule change is advantageous for originators of a 
large value of ACH debit transfers over FedACH, the Board recognizes 
that the simultaneous posting of ACH debit and credit transfers would 
reduce, on average, the available balances for the majority of FedACH 
participants between 8:30 and 10:59 a.m., even considering that some 
institutions would receive credits to their Federal Reserve accounts 
from TT&L investments associated with EFTPS ACH debit transfers. As 
indicated in table 1, approximately 3,100 of the 3,200 FedACH 
participants currently gain balances from the posting of ACH credit 
transfers (net receivers of funds).\10\ If ACH debit transfers are 
posted at 8:30 a.m., the number of institutions that gain balances 
could decrease to approximately 1,500

[[Page 12446]]

institutions. While still receiving more funds than they pay out, about 
90 percent of these 1,500 institutions could have lower balances in 
their Federal Reserve accounts between 8:30 a.m. and 10:59 a.m. than 
under the current posting rules because of funding their ACH debit 
transfers. In addition, if ACH debit transfers post at 8:30 a.m., 
approximately 1,700 institutions could need to pay out more than they 
receive from the ACH credit and debit transfers (net payors of 
funds).\11\
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    \10\ Net receivers of funds refers to institutions that have a 
net increase in balances because the credit accounting entries 
exceed the debit accounting entries associated with the ACH credit 
or debit transfers received and originated.

                  Table 1.--Number of Receivers and Payors of Funds for ACH Transfers (Q4 2007)
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                                                                      Number of institutions
                                                 ---------------------------------------------------------------
                                                   Net receivers   Net payors of
                                                     of funds          funds          Other *          Total
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Current posting rules:
    ACH credit transfers at 8:30 a.m............           3,100              90              10           3,200
    ACH debit transfers at 11 a.m...............             100           3,000             100           3,200
Proposed change to posting rules:
    Net effect of ACH debit and credit transfers           1,500           1,700               0           3,200
     at 8:30 a.m................................
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*The ``other'' category includes institutions that do not send or receive ACH debit or credit transfers or that
  originations and receipts, on average, net to zero.

    Of the 1,700 payors of funds, the Board estimates that 
approximately 1,500 could have insufficient Reserve Bank account 
balances and so could need additional funding or could incur (greater) 
daylight overdrafts at 8:30 a.m. if ACH debit transfers and TT&L 
investments associated with EFTPS debit originations posted at 8:30 
a.m. The vast majority of these institutions are eligible to incur 
daylight overdrafts but at least 35 institutions would not be eligible.
    For most institutions eligible for daylight overdrafts, the 
deductible, or the ``free credit'' provided under the current PSR 
policy, appears adequate to cover the daylight overdrafts associated 
with the proposed posting-rule change. A small percentage of 
institutions, however, could incur increased overdraft fees if they 
funded the earlier posting of ACH debit transfers through daylight 
overdrafts from the Reserve Banks. Table 2 provides a breakdown of the 
number of institutions that could pay higher daylight overdraft fees if 
ACH debit transfers and TT&L investments associated with EFTPS ACH 
debit transactions posted at 8:30 a.m. under the current PSR policy. 
The data suggest that about 115 institutions could incur higher fees, 
although 70 could have increased fees of under $500 a year (less than 
$20 in a two-week period on average). The majority of institutions that 
could pay additional fees in excess of $500 a year are largely mid-to-
large users of daylight credit.
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    \11\ Net payors of funds refers to institutions that have a net 
decrease in balances because the debit accounting entries exceed the 
credit accounting entries associated with the ACH credit or debit 
transfers received and originated.

 Table 2.--Number of Institutions Eligible for Daylight Credit That Could Incur Increased Fees Under the Current
                                              PSR Policy (Q4 2007)
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                                                           Small users of      Mid-to-large
           Average increase in fees (annual)                  intraday      users of intraday   Total number of
                                                             credit\12\           credit          institutions
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$0-$500................................................                 20                 50                 70
$500-$1,500............................................                  2                 15                 17
$1,500-$3,000..........................................                  1                  5                  6
$3,000-$30,000.........................................                  2                 15                 17
$30,000-$150,000.......................................                  0                  5                  5
                                                        --------------------------------------------------------
    Total..............................................                 25                 90                115
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    The Board estimates that thirty-five institutions that are 
ineligible for intraday credit under the PSR policy would need to 
procure additional funding to avoid incurring daylight overdrafts if 
ACH debit transfers and TT&L investments associated with EFTPS ACH 
debit transactions posted at 8:30 a.m. These institutions include 
bankers' banks and corporate credit unions that retain their Regulation 
D exemption. On average each of these institutions would need to 
increase funding in their Reserve Bank accounts before 8:30 a.m. by 
about $30 million.
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    \12\ ``Small users'' are exempt-cap institutions or institutions 
with an average daily overdraft of $1 million or less.
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    Under the proposed changes to the PSR policy, the institutions 
affected could change based on the amount of collateral pledged by 
these institutions, the elimination of the deductible, and the increase 
in the fee waiver to $150. As can be seen in table 3, the Board 
estimates that if the posting time for ACH debit transfers and TT&L 
investments associated with EFTPS ACH debit transfers moved to 8:30 
a.m. and the proposed PSR policy changes were adopted, approximately 
170 institutions that are eligible for daylight overdrafts could pay 
higher fees for intraday credit unless they chose to pledge 
(additional) collateral to the Reserve Banks.\13\ Of these 170 
institutions, only 25 are small users of daylight credit.
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    \13\The Board has developed a fee calculator to help 
institutions estimate fees under the proposed PSR policy changes. 
Institutions could use this calculator to estimate the joint effect 
of the proposed posting-rules and PSR policy changes. The calculator 
is located on the Board's website at https://www.federalreserve.gov/
apps/RPFCalc/.

[[Page 12447]]



Table 3.--Number of Institutions Eligible for Daylight Credit That Could Incur Increased Fees Under the Proposed
                                              PSR Policy (Q4 2007)
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                                                                               Mid-to-large
           Average increase in fees (annual)               Small users of   users of intraday   Total number of
                                                          intraday credit         credit          institutions
----------------------------------------------------------------------------------------------------------------
$0-$500................................................                 20                 30                 50
$500-$1,500............................................                  5                 20                 25
$1,500-$3,000..........................................                  0                 25                 25
$3,000-$30,000.........................................                  0                 50                 50
$30,000-$150,000.......................................                  0                 15                 15
Greater than $150,000..................................                  0                  5                  5
                                                        --------------------------------------------------------
    Total..............................................                 25                145                170
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    The Board estimates that the proposed PSR policy changes could 
result in about 160 institutions eligible for daylight overdrafts 
paying higher fees if they did not pledge (additional) collateral.\14\ 
Thus, the number of institutions paying higher fees would increase by 
approximately ten with the addition of the proposed posting-rule 
change. While for affected institutions the amount of fees paid could 
be greater if both policy changes were adopted, institutions could 
fully offset these daylight overdraft fees through pledging 
(additional) collateral or increasing funding for their Federal Reserve 
accounts. For the 35 institutions that are ineligible for intraday 
credit, the effect of changing the posting rules for ACH debit 
transfers would remain the same under the current and proposed PSR 
policy regimes.
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    \14\The Federal Register notice on the proposed changes to the 
PSR policy contains an analysis of the 160 institutions that could 
be paying higher fees under that proposal without the posting-rules 
change.
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    Overall, the Board believes the benefit of increased liquidity for 
institutions that originate large value of ACH debit transfers over 
FedACH or delivered from EPN to FedACH, the advantage for FedACH in 
eliminating a competitive disparity, and the improvement in measuring 
daylight overdrafts in total outweigh the increase in funding costs or 
daylight overdraft fees incurred by about 205 institutions. The Board 
also believes that many of these institutions will be able to avoid 
increased fees by pledging (additional) collateral under the proposed 
changes to the PSR policy. Each of these institutions could pledge 
(additional) collateral of approximately $65 million, on average, to 
avoid incurring higher fees from the posting-rule and broader PSR 
policy changes.\15\
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    \15\The calculation of the collateral value excludes data for 
one institution that is an outlier in comparison to the other 
institutions that could be paying higher fees. The inclusion of this 
institution would significantly increase the estimated amount of 
collateral that an average institution would need to pledge to avoid 
paying higher fees.
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    Adoption of an earlier posting time for ACH debit transfers and 
TT&L investments associated with EFTPS ACH debit transfers could be 
implemented in a relatively short time, but the Board would consider 
the advantages and disadvantages of implementing the posting-rule 
change in tandem with the broader PSR policy changes to mitigate the 
effects. At a minimum, the Board would announce an effective date at 
least six months from the final rule to give institutions sufficient 
time to make plans to secure additional funding, as needed.

III. Questions

    The Board proposes to change the posting time for commercial and 
government ACH debit transfers that are processed by the Reserve Banks' 
FedACH service to 8:30 a.m. to coincide with the posting of commercial 
and government ACH credit transfers. In conjunction with such a change, 
the Board also intends, in consultation with the U.S. Treasury, to move 
the posting of TT&L investments associated with EFTPS ACH debit 
transfers to 8:30 a.m. to maintain the simultaneous posting of these 
related transactions. The Board requests comment on the benefits and 
drawbacks of these proposed posting-rule change. In particular,
    (1) To what extent do institutions that originate debit transfers 
through FedACH incur competitive disparities because of the difference 
in settlement times between operators? To what extent would adopting 
the proposal alter this situation?
    (2) To what extent are there competitive disparities between ACH 
operators because of the difference in settlement times? To what extent 
would adopting the proposal alter this situation?
    (3) Would the proposed change have an effect on the availability of 
funds to customers of depository institutions?
    (4) To what extent would the proposed broader PSR policy changes, 
including a zero fee for collateralized daylight overdrafts, mitigate 
the liquidity concerns of originating institutions if the Board did not 
adopt the proposed change to the posting rules for of ACH debit 
transfers?
    (5) To what extent would the proposed broader PSR policy changes, 
including a zero fee for collateralized daylight overdrafts, mitigate 
the liquidity concerns of receiving institutions of the proposed change 
to the posting rules for ACH debit transfers?
    (6) Under the current and the proposed PSR policy, what costs would 
institutions expect to incur to fund their Federal Reserve accounts by 
8:30 a.m. for ACH debit transfers, particularly if the institutions did 
not want or were ineligible to incur daylight overdrafts?
    (7) If the Board changed the posting times for ACH debit transfers 
and EFTPS ACH debit transfers to 8:30 a.m., is six months a sufficient 
lead time for implementation to enable institutions to make plans to 
secure additional funding, as needed? Alternatively, should the Board 
implement the change to the posting rules at the same time as the 
proposed broader PSR policy changes to provide institutions an 
opportunity to pledge (additional) collateral to manage a possible 
increase in fees?

IV. Competitive Impact Analysis

    The Board conducts a competitive impact analysis when it considers 
a change, such as that being proposed for the posting time of ACH debit 
transfers and the accompanying change to TT&L investments associated 
with EFTPS ACH debit transfers. Specifically, the Board determines 
whether there would be a direct and material adverse effect on the 
ability of other service providers to compete with the Federal Reserve 
due to differing legal powers or due to the Federal Reserve's dominant 
market position deriving from such legal differences.\16\ The Board 
believes that there are no adverse effects resulting

[[Page 12448]]

from the proposed change due to legal differences.
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    \16\ Federal Reserve Regulatory Service, 7-145.2.
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    Shifting the posting of ACH debit transfers to 8:30 a.m. would 
serve to bring the settlement of ACH debit transfers processed by the 
Reserve Banks' FedACH service in line with its private-sector 
competitor and reduce a competitive disadvantage to the Reserve Banks. 
The proposed posting-rule change would benefit not only FedACH 
participants that originate debit transfers but also EPN customers that 
originate debit transfers sent to FedACH, which settle according to the 
Board's posting rules.

V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the PSR policy 
change it is considering under the authority delegated to the Board by 
the Office of Management and Budget. No collection of information 
pursuant to the Paperwork Reduction Act are contained in the policy 
statement.

VI. Federal Reserve Policy on Payments System Risk

    If the Board adopts an earlier posting time for ACH debit transfers 
and EFTPS investments associated with ACH debit transfers, it would 
amend the ``Federal Reserve Policy on Payments System Risk'' Section 
II.A. under the subheading ``Procedures for Measuring Daylight 
Overdrafts'' as follows in italic.

Procedures for Measuring Daylight Overdrafts \17\
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    \17\ This schedule of posting rules does not affect the 
overdraft restrictions and overdraft-measurement provisions for 
nonbank banks established by the Competitive Equality Banking Act of 
1987 and the Board's Regulation Y (12 CFR 225.52).
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Opening Balance (Previous Day's Closing Balance)

    Post at 8:30 a.m. Eastern Time:

+/-Government and commercial ACH transactions \18\
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    \18\ Institutions that are monitored in real time must fund the 
total amount of their commercial ACH credit originations in order 
for the transactions to be processed. If the Federal Reserve 
receives commercial ACH credit transactions from institutions 
monitored in real time after the scheduled close of the Fedwire 
Funds Service, these transactions will be processed at 12:30 a.m. 
the next business day, or by the ACH deposit deadline, whichever is 
earlier. The Account Balance Monitoring System provides intraday 
account information to the Reserve Banks and institutions and is 
used primarily to give authorized Reserve Bank personnel a mechanism 
to control and monitor account activity for selected institutions. 
For more information on ACH transaction processing, refer to the ACH 
Settlement Day Finality Guide available through the Federal Reserve 
Financial Services Web site at http://www.frbservices.org.
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+ Treasury Electronic Federal Tax Payment System (EFTPS) investments 
from ACH transactions
+ Advance-notice Treasury investments
+ Treasury checks, postal money orders, local Federal Reserve Bank 
checks, and EZ-Clear savings bond redemptions in separately sorted 
deposits; these items must be deposited by 12:01 a.m. local time or the 
local deposit deadline, whichever is later
-Penalty assessments for tax payments from the Treasury Investment 
Program (TIP).\19\
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    \19\The Reserve Banks will identify and notify institutions with 
Treasury-authorized penalties on Thursdays. In the event that 
Thursday is a holiday, the Reserve Banks will identify and notify 
institutions with Treasury-authorized penalties on the following 
business day. Penalties will then be posted on the business day 
following notification.
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* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, February 28, 2008.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E8-4183 Filed 3-4-08; 8:45 am]
BILLING CODE 6210-01-P