69926 Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 

1The Core Principles were developed by the 

Committee on Payment and Settlement Systems 

(CPSS) of the central banks of the Group of Ten 

countries, and the Recommendations were 

developed by the CPSS in conjunction with the 

Technical Committee of the International 

Organization of Securities Commissions (IOSCO). 

The full reports on the Core Principles and the 

Recommendations are available at http://

www.bis.org.

2 59 FR 67534, Dec. 29, 1994. The Lamfalussy 

Minimum Standards were set out in the ‘‘Report of 

the Committee on Interbank Netting Schemes of the 

Central Banks of the Group of Ten Countries,’’

published by the Bank for International Settlements 

in November 1990.

3Both sets of standards are part of the Financial 

Stability Forum’s Compendium of Standards that 

have been widely recognized and endorsed by U.S. 

authorities as integral to strengthening global 

financial stability. Both sets of standards were 

published by the relevant committees for public 

comment before being adopted in their final form. 4 63 FR 34888, June 26, 1998.

FEDERAL RESERVE SYSTEM

[Docket No. OP–1191] 

Policy on Payments System Risk

AGENCY: Board of Governors of the 

Federal Reserve System.

ACTION: Notice.

SUMMARY: The Board has adopted 

several revisions to its Policy on 

Payments System Risk (PSR policy). 

Specifically, the Board revised its 

expectations for risk management in 

payments and securities settlement 

systems as previously set out in part II 

of the PSR policy, Policies for PrivateSector Systems, and expanded the scope 

of this part to cover Federal Reserve 

payments and securities settlement 

systems. The Board also reorganized the 

policy such that the more general Risk 

Management in Payments and Securities 

Settlement Systems now constitutes part 

I of the policy, while Federal Reserve 

Daylight Credit Policies constitute part 

II. Finally, the Board has deleted part III 

of the policy, entitled ‘‘Other Policies.’’

DATES: Revisions described in this 

notice will take effect on January 2, 

2005.

FOR FURTHER INFORMATION CONTACT: Jeff 

Stehm, Assistant Director (202) 452–

2217, or Doug Conover, Senior Analyst 

(202) 452–2887, Division of Reserve 

Bank Operations and Payment Systems; 

for the hearing impaired only: 

Telecommunications Device for the 

Deaf, (202) 263–4869.

SUPPLEMENTARY INFORMATION

I. Background 

On April 26, 2004, the Board 

requested comment on proposed 

changes to part II of its Policy Statement 

on Payments System Risk addressing 

risk management in payments and 

securities settlement systems (69 FR 

22512). Key aspects of the proposal 

included an expansion of the policy’s 

scope to include the Federal Reserve 

Banks’ (Reserve Banks) payments and 

securities settlement services, revised 

general risk management expectations 

for all systems subject to the policy, and 

the incorporation of the Core Principles 

for Systemically Important Payment 

Systems (Core Principles) and 

Recommendations for Securities 

Settlement Systems (Recommendations) 

as the Board’s minimum standards for 

systemically important systems.1 The 

proposed changes did not affect part I of 

the PSR policy, Federal Reserve 

Daylight Credit Policies, other than to 

renumber it as part II.

The Board proposed these revisions to 

update the policy in light of current 

industry and supervisory riskmanagement approaches and the recent 

publication of new international riskmanagement standards for payments 

and securities settlement systems. Over 

the course of several years, the Federal 

Reserve has worked with other central 

banks and securities regulators to 

develop standards to strengthen 

payments and securities settlement 

infrastructures. These efforts initially 

produced the Lamfalussy Minimum 

Standards, which were incorporated 

into the Board’s PSR policy in 1994.2

More recently, this work resulted in the 

publication of the Core Principles and 

the Recommendations. The Core 

Principles extend and replace the 

Lamfalussy Minimum Standards, while 

the Recommendations provide, for the 

first time, explicit standards for 

securities settlement systems.3

In addition to establishing specific 

standards, however, the Core Principles 

and Recommendations call for central 

banks to state clearly their roles and 

policies regarding payments and 

securities settlement systems, assess 

compliance with the Core Principles 

and the Recommendations when 

overseeing relevant systems, and 

coordinate with other authorities in 

overseeing systems. Moreover, the Core 

Principles and Recommendations are 

intended to apply to systems operated 

by central banks as well as the private 

sector. The policy revisions proposed by 

the Board in April were designed to 

meet these and other expectations. 

II. Summary of Comments and Analysis 

The Board received eight comments 

on the proposed policy—three from 

private-sector payment system 

operators, two from industry 

associations, two from commercial 

banks, and one from the Federal Reserve 

Bank of Richmond. Comments generally 

supported the substantive policy 

revisions set out in the proposal, but 

varied in regard to the Board’s series of 

specific questions on the policy 

threshold, the definition of a system, the 

general policy expectations, and the 

criteria for determining a systemically 

important system. Several commenters 

also discussed risks related to thirdparty access in ACH systems. 

The final policy retains all substantive 

aspects of the proposed policy. The final 

policy, however, includes several minor 

changes that address specific comments. 

The final policy also includes other 

editorial and technical corrections, 

including several changes to make the 

new introduction consistent with recent 

revisions to the Federal Reserve 

Daylight Credit Policies, as published 

on September 28, 2004 (69 FR 57917). 

Finally, in an action not proposed in 

April, the Board also deleted part III of 

the policy. 

Policy Threshold 

Five of the eight commenters offered 

specific comments on the $5 billion 

policy threshold. Three commenters 

suggested that the threshold be modified 

to be more inclusive by lowering the 

threshold or by suggesting additional 

quantitative or qualitative criteria. One 

commenter stated that the $5 billion 

threshold would leave out certain 

unnamed systems that should be 

covered by the policy for reasons of both 

systemic risk and competitive equity. 

Several commenters specifically 

supported the threshold, pointing out 

the current approach would ‘‘result in a 

level playing field’’ and ‘‘ensure a 

consistent regulatory approach.’’

In contrast, one commenter suggested 

that the threshold be modified to be less 

inclusive, specifically by raising the 

threshold to $10 billion. This 

commenter cited the original intent of 

the $5 billion threshold as described in 

January 1999 as exempting from the 

policy smaller systems that are not 

likely to ‘‘pose systemic risks or other 

significant risk concerns.’’4 The 

commenter argued that the $5 billion 

threshold was appropriate in 1999, but 

due to economic growth, the level is no 

longer appropriate, as some systems 

with gross settlement near $5 billion per 

day still pose no systemic risk concerns. 

This commenter and one other 

suggested that the threshold be 

increased periodically.

The Board agrees with the opinions of 

several commenters who pointed out 

the value of a simple policy threshold 

in ensuring a consistent approach and 

transparent application of the policy. In 

Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 69927

5 60 FR 42413, Aug. 15, 1995.

fact, the $5 billion gross settlement 

threshold was adopted in response to 

industry comments in 1998 that largely 

opposed the use of more complex 

formulas in favor of a simple, numerical 

threshold. With regard to the absolute 

level of the threshold, the Board 

continues to believe that the $5 billion 

level appropriately eliminates any 

administrative burden of complying 

with the policy for those systems that 

are unlikely to pose significant risk 

concerns. The Board sees no reason to 

modify the existing threshold at this 

time. 

Definition of a System 

Of the four commenters that 

specifically addressed the definition of 

‘‘system’’ as set out in proposed policy, 

three agreed that the definition was 

‘‘reasonable and appropriate,’’

especially the exemption for bilateral 

relationships, such as in traditional 

correspondent banking. One 

commenter, however, suggested that the 

Board clarify the relationship between 

the ‘‘general definition’’ of a system and 

the three characteristics typically 

‘‘embodied’’ by such systems. The final 

policy explains how the Board may use 

these characteristics in determining 

whether a particular arrangement meets 

the policy’s definition of a system. 

General Policy Expectations 

All eight commenters expressed 

support for the general risk management 

expectations set out in part B of the 

proposed policy. Several offered strong 

support for these revisions. Two 

commenters raised questions about 

whether risks related to third-party 

access to payment systems, especially 

ACH systems, would fall under the 

general risk-management expectations 

(these comments are discussed below). 

One commenter sought additional 

clarity on how systems should assess 

their dependencies and interrelationships with other payment and 

securities settlement systems. This same 

commenter suggested that, where 

appropriate, oversight efforts associated 

with the revised policy be conducted 

through existing bank supervisory 

programs, citing a minimization in 

regulatory burden. The final policy 

elaborates on the Board’s expectation 

that a system understand the risks posed 

by its various relationships with other 

systems, and clarifies the Board’s intent 

to minimize unnecessary burden on 

systems subject to the policy, including 

coordinating, where possible, any 

assessments of compliance with the 

policy with other supervisory attentions 

to a system. The final policy also 

clarifies that systems currently falling 

below the $5 billion threshold for 

applying the policy, though not subject 

to the policy, are nonetheless 

encouraged to implement a sound riskmanagement framework.

Criteria for Systemic Importance 

Four of the eight commenters 

suggested modifications to the criteria 

for determining ‘‘systemically 

important’’ systems that were set out in 

the proposed policy for assessing 

whether the Core Principles or 

Recommendations would be applicable 

to a payments or securities settlement 

system. Two commenters suggested that 

the criteria needed more clarity so that 

systems and their participants can know 

whether a particular system would be 

considered systemically important. 

These same commenters also suggested 

that the policy include some indicators 

that suggest when a system is not 

systemically important. One commenter 

suggested the inclusion of a seventh 

criterion, whether ‘‘a failure of the 

system would cause significant or 

extended loss of investor or consumer 

confidence.’’ A fourth commenter 

suggested that the policy clarify whether 

a system would be considered 

systemically important if it met only 

one of the six criteria. 

The Board decided to retain the six 

proposed criteria for systemic 

importance. These criteria are based 

upon the description of ‘‘systemically 

important systems’’ provided in the 

Core Principles, adjusted to be 

applicable to securities settlement 

systems and to provide consistency with 

the criteria previously set out in the 

policy for applying the Lamfalussy 

Standards. Regarding the suggestion that 

the policy include a list of exclusions or 

characteristics of systems that are not 

systemically important, the Board 

believed that this type of change could 

introduce unnecessary conflicts with 

the existing criteria. On whether to add 

a seventh explicit criterion regarding 

investor or consumer confidence, the 

Board believes that these changes would 

unnecessarily broaden the definition of 

systemically important in a potentially 

ambiguous manner, and with possible 

unintended consequences. For example, 

such a criterion may suggest that many 

retail systems, such as debit card, credit 

card, and ACH systems, be considered 

systemically important regardless of any 

limited potential to spread credit and 

liquidity shocks through the financial 

system. 

To address commenters’ concerns 

about transparency regarding whether 

the Board considers a particular system 

to be systemically important for 

purposes of the PSR policy, the final 

policy states that the Board will 

separately inform each system subject to 

the policy as to whether they are or are 

not considered systemically important. 

This revision retains necessary 

flexibility in the criteria for systemic 

importance, but provides clarity for 

each system subject to the policy as to 

whether the Board expects them to meet 

the standards for systemically important 

systems. 

Third-Party Access 

Three commenters focused their 

comments on the risks regarding ‘‘thirdparty access’’ to ACH systems. Two of 

these organizations offered specific 

suggestions on how to address thirdparty risks in the ACH. Both suggested 

that the policy include a requirement 

that all third-party arrangements be 

subject to the approval of the sponsoring 

institution’s board of directors or other 

senior management body. One of the 

two suggested that ACH operators 

provide tools for institutions to manage 

these risks, and controls that should, at 

a minimum, include gross debit limits. 

The third commenter did not make 

these specific suggestions and instead 

suggested that the Board request 

comment on a ‘‘specific proposal’’ to 

address these risks. 

The Federal Reserve is interested in 

risks related to third-party access in 

ACH networks, and through the Federal 

Reserve Banks’ role as an ACH operator, 

is taking steps to address these risks. For 

example, the Federal Reserve Bank 

presidents recently circulated a letter to 

depository institutions outlining the 

risks and possible risk mitigation 

techniques related to ACH debit 

originations, including third-party 

originators. The Federal Reserve Banks 

also have offered to work with ACH 

participants and the ACH rule-making 

body to discuss these risks. The Federal 

Reserve Banks are also examining 

possible enhancements to FedACH that 

could strengthen depository 

institutions’ controls over ACH activity 

settling through their accounts. 

In recent years, however, the Board 

specifically moved away from 

addressing outsourcing and third-party 

access risks in the context of the PSR 

policy. In August 1995, the Board 

sought comment on the benefits and 

costs of adopting third-party access 

provisions for ACH credit transfers in 

the PSR policy.5 The Board’s analysis of 

this issue, however, indicated that the 

costs, complexity, and operational effect 

of potential changes outweighed the risk 

reduction benefits. An ACH third-party 

access policy was never adopted. 

69928 Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 

6 66 FR 19165, April 13, 2001.

7Federal Reserve and other FFIEC supervisors 

have issued guidance concerning third-party access 

risk, and continue to work to identify specific types 

of ACH flows and businesses that may pose special 

risks to depository institutions. See SR Ltr. 01–16 

(July 3, 2001), SR Ltr. 00–4 (February 29, 2000).

8These procedures are described in ‘‘The Federal 

Reserve in the Payments System,’’ as revised in 

March 1990 (55 FR 11648, March 29, 1990).

1For the Board’s long-standing objectives in the 

payments system, see ‘‘The Federal Reserve in the 

Payments System,’’ September 2001, FRRS 9–1550, 

available at http://www.federalreserve.gov/

paymentsystems/pricing/frpaysys.htm.

Moreover, in April 2001, the Board 

rescinded the third-party Fedwire 

access section of the PSR policy, 

adopted in 1987, stating that such 

access, when properly managed by 

depository institutions, poses little 

additional risk to the Federal Reserve 

and does not warrant the administrative 

burden imposed by the third-party 

access policy.6 The Board also stated 

that as part of the ongoing supervisory 

process, banking organizations are 

expected to address and manage risks 

that may arise out of third-party 

arrangements.7

Deletion of Part III 

Given the changes to the policy that 

the Board is adopting in this notice and 

the changes adopted in recent revisions 

to the policy concerning Federal 

Reserve Daylight Credit Policies, the 

Board has decided to delete part III of 

the PSR policy, entitled Other Policies. 

Part III encourages, but does not require, 

depository institutions to use rollovers 

and continuing contracts in federal 

funds and Eurodollars to minimize their 

use of daylight credit in their Federal 

Reserve accounts. The Board adopted 

this aspect of the policy in 1989 as 

guidance for depository institutions. 

Given the incentives to manage daylight 

credit provided by the implementation 

of daylight overdraft fees in 1994, the 

Board believes that depository 

institutions have the appropriate 

incentives to incorporate the practices 

encouraged in part III into their daylight 

credit management procedures, and that 

specific guidance in this area is no 

longer necessary. 

IV. Regulatory Flexibility Act Analysis 

The Board has determined that these 

revisions to the PSR policy would not 

have a significant economic impact on 

a substantial number of small entities. 

The policy requires payments and 

securities settlement systems to address 

material risks in their systems. The 

policy applies to relatively large 

systems, i.e., those that expect to settle 

an aggregate gross value exceeding $5 

billion on any day during the next 

twelve-month period. Thus, the policy 

is designed to minimize regulatory 

burden on smaller systems that do not 

raise material risks. Although small 

financial institutions may participate in 

payments or securities settlement 

systems that are subject to the policy, 

the compliance burden largely falls on 

system operators and not on individual 

participants. 

V. Competitive Impact Analysis 

The Board has established procedures 

for assessing the competitive impact of 

rule or policy changes that have a 

substantial impact on payments system 

participants.8 Under these procedures, 

the Board will assess whether a change 

would have a direct and material 

adverse effect on the ability of other 

service providers to compete effectively 

with the Federal Reserve in providing 

similar services due to differing legal 

powers or constraints, or due to a 

dominant market position of the Federal 

Reserve deriving from such differences. 

If no reasonable modifications would 

mitigate the adverse competitive effects, 

the Board will determine whether the 

anticipated benefits are significant 

enough to proceed with the change 

despite the adverse effects. The PSR 

policy provides that Reserve Bank 

payments and securities settlement 

systems will be treated similarly to 

private-sector systems and thus should 

have no material adverse effect on the 

ability of other service providers to 

compete effectively with the Federal 

Reserve Banks in providing payments 

and securities settlement services.

VI. Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. ch. 

3506; 5 CFR part 1320 Appendix A.1), 

the Board has reviewed the policy under 

the authority delegated to the Board by 

the Office of Management and Budget. 

No collections of information pursuant 

to the Paperwork Reduction Act are 

contained in the revisions to the PSR 

policy. 

VII. Federal Reserve Policy on 

Payments System Risk 

The PSR policy is revised, effective 

January 2, 2005, to read as follows:

Introduction 

Risks in Payments and Securities Settlement 

Systems 

I. Risk Management in Payments and 

Securities Settlement Systems 

A. Scope 

B. General Policy Expectations 

C. Systemically Important Systems 

1. Standards for Systemically Important 

Payments Systems 

2. Standards for Systemically Important 

Securities Settlement Systems 

II. Federal Reserve Daylight Credit Policies 

A. Daylight Overdraft Definition and 

Measurement 

B. Pricing 

C. Net Debit Caps 

1. Definition 

2. Cap Categories 

a. Self-Assessed 

b. De minimis

c. Exempt-From-Filing 

d. Zero 

3. Capital measure 

a. U.S.-Chartered Institutions 

b. U.S. Branches and Agencies of Foreign 

Banks 

D. Collateralized Capacity 

E. Special Situations 

1. Edge and Agreement Corporations 

2. Bankers’ Banks 

3. Limited-Purpose Trust Companies 

4. Government-Sponsored Enterprises and 

International Organizations 

5. Problem Institutions 

F. Monitoring 

1. Ex Post 

2. Real Time 

3. Multi-District Institutions 

G. Transfer-Size Limit on Book-Entry 

Securities

Introduction 

Payments and securities settlement 

systems are critical components of the 

nation’s financial system. The smooth 

functioning of these systems is vital to 

the financial stability of the U.S. 

economy. Given the importance of these 

systems, the Board has developed this 

policy to address the risks that 

payments and securities settlement 

systems present to the financial system 

and to the Federal Reserve Banks 

(Reserve Banks). 

In adopting this policy, the Board’s 

objectives are to foster the safety and 

efficiency of payments and securities 

settlement systems. These policy 

objectives are consistent with (1) the 

Board’s long-standing objectives to 

promote the integrity, efficiency, and 

accessibility of the payments 

mechanism; (2) industry and 

supervisory methods for risk 

management; and (3) internationally 

accepted risk management standards 

and practices for systemically important 

payments and securities settlement 

systems.1

Part I of this policy sets out the key 

risk management expectations of the 

Board that public- and private-sector 

payments and securities settlement 

systems should meet in the design and 

operation of those systems. Under the 

policy, all payments and securities 

settlement systems that expect to settle 

an aggregate gross value exceeding $5 

billion on any day during the next 

twelve months are expected to 

implement a risk management 

Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 69929

2The Core Principles were developed by the 

Committee on Payment and Settlement Systems of 

the central banks of the Group of Ten countries 

(CPSS) and the Recommendations were developed 

by the CPSS in conjunction with the Technical 

Committee of the International Organization of 

Securities Commissions (IOSCO). The full reports 

on the Core Principles and the Recommendations 

are available at http://www.bis.org.

3 In part II of this policy, the term ‘‘institution’’

will be used to refer to institutions defined as 

‘‘depository institutions’’ in 12 U.S.C. 461(b)(1)(A), 

U.S. branches and agencies of foreign banking 

organizations, Edge and agreement corporations, 

and bankers’ banks, limited purpose trust 

companies, government-sponsored enterprises, and 

international organizations, unless the context 

indicates a different reading.

4These definitions of credit risk, liquidity risk, 

and legal risk are based upon those presented in the 

Core Principles and the Recommendations. The 

definition of operational risk is based on the Basel 

Committee on Banking Supervision’s ‘‘Sound 

Practices for the Management and Supervision of 

Operational Risk.’’ See these publications at

http://www.bis.org for a fuller discussion of these 

risks.

5The term ‘‘financial institution,’’ as generally 

used in part I of this policy, includes organizations, 

such as depository institutions, securities dealers, 

and other institutions, that act as intermediaries in 

financial markets and engage in financial activities 

for themselves and their customers. 

6Several existing regulatory and bank supervision 

guidelines and policies also are directed at 

institutions’ management of the risks posed by 

interbank payments and settlement activity. For 

example, Federal Reserve Regulation F (12 CFR part 

206) directs insured depository institutions to 

establish policies and procedures to avoid excessive 

exposures to any other depository institutions, 

including exposures that may be generated through 

the clearing and settlement of payments.

framework that is appropriate for the 

risks they pose to the system operator, 

system participants, and the financial 

system more broadly. Systemically 

important payments and securities 

settlement systems are also expected to 

meet more specific standards based 

upon the Core Principles for 

Systemically Important Payments 

Systems (Core Principles) and the 

Recommendations for Securities 

Settlement Systems 

(Recommendations), respectively.2

Part II of this policy governs the 

provision of intraday or ‘‘daylight’’

credit in accounts at the Reserve Banks 

and sets out the general methods used 

by the Reserve Banks to control their 

intraday credit exposures. Under this 

part, the Board expects institutions to 

manage their Federal Reserve accounts 

effectively and use Federal Reserve 

daylight credit efficiently and 

appropriately, in accordance with this 

policy.3 Although some intraday credit 

may be necessary, the Board expects 

that, as a result of this policy, relatively 

few institutions will consistently rely on 

significant amounts of intraday credit 

supplied by the Federal Reserve to 

conduct their business. The Board will 

continue to monitor the effects of its 

daylight credit policies on the payments 

system.

Risks in Payments and Securities 

Settlement Systems 

The basic risks in payments and 

securities settlement systems are credit 

risk, liquidity risk, operational risk, and 

legal risk. In the context of this policy, 

these risks are defined as follows.4

Credit Risk. The risk that a 

counterparty will not settle an 

obligation for full value either when 

due, or anytime thereafter. 

Liquidity Risk. The risk that a 

counterparty will not settle an 

obligation for full value when due.

Operational Risk. The risk of loss 

resulting from inadequate or failed 

internal processes, people, and systems, 

or from external events. This type of risk 

includes various physical and 

information security risks. 

Legal Risk. The risk of loss because of 

the unexpected application of a law or 

regulation or because a contract cannot 

be enforced. 

These risks arise between financial 

institutions as they settle payments and 

securities transactions and must be 

managed by institutions, both 

individually and collectively.5 6

Multilateral payments and securities 

settlement systems, in particular, may 

increase, shift, concentrate, or otherwise 

transform risks in unanticipated ways. 

These systems also may pose systemic 

risk to the financial system where the 

inability of a system participant to meet 

its obligations when due may cause 

other participants to be unable to meet 

their obligations when due. The failure 

of one or more participants to settle 

their payments or securities 

transactions, in turn, could create credit 

or liquidity problems for other 

participants, the system operator, or 

other financial institutions. Systemic 

risk might lead ultimately to a 

disruption in the financial system more 

broadly or undermine public confidence 

in the nation’s financial infrastructure.

These risks stem, in part, from the 

multilateral and time-sensitive credit 

and liquidity interdependencies among 

financial institutions. These 

interdependencies often create complex 

transaction flows that, in combination 

with a system’s design, can lead to 

significant demands for intraday credit, 

either on a regular or extraordinary 

basis. Some level of intraday credit is 

appropriate to ensure the smooth 

functioning of payments and securities 

settlement systems. To the extent that 

financial institutions or the Reserve 

Banks are the direct or indirect source 

of such intraday credit, they may face a 

direct risk of loss if daylight credit is not 

extinguished as planned. In addition, 

measures taken by Reserve Banks to 

limit their intraday credit exposures 

may shift some or all of the associated 

risks to private-sector systems. 

The smooth functioning of payments 

and securities settlement systems is also 

critical to certain public policy 

objectives in the areas of monetary 

policy and banking supervision. The 

effective implementation of monetary 

policy, for example, depends on both 

the orderly settlement of open market 

operations and the efficient distribution 

of reserve balances throughout the 

banking system via the money market 

and payments system. Likewise, 

supervisory objectives regarding the 

safety and soundness of depository 

institutions must take into account the 

risks payments and securities settlement 

systems pose to depository institutions 

that participate directly or indirectly in, 

or provide settlement, custody, or credit 

services to, such systems. 

Through this policy, the Board 

expects financial system participants, 

including the Reserve Banks, to manage 

appropriately the settlement and 

systemic risks arising in payments and 

securities settlement systems, consistent 

with the smooth operation of the 

financial system. This policy is 

designed to fulfill that aim by (1) 

informing all financial system 

participants and system operators of the 

basic risks that arise in the settlement 

process, and encouraging the 

management of these risks (2) describing 

the Board’s general expectations for risk 

management in payment and securities 

settlement systems subject to this 

policy, (3) providing explicit risk 

management standards for systemically 

important systems, and (4) establishing 

the policy conditions governing the 

provision of Federal Reserve intraday 

credit to account holders. The Board’s 

adoption of this policy in no way 

diminishes the primary responsibilities 

of financial system participants 

generally and settlement system 

operators, participants, and Federal 

Reserve accountholders more 

specifically, to address the risks that 

may arise through their operation of, or 

participation in, payments and 

securities settlement systems.

I. Risk Management in Payments and 

Securities Settlement Systems 

This part sets out the Board’s 

expectations regarding the management 

of risk in payments and securities 

settlement systems, including those 

operated by the Reserve Banks. The 

Board will be guided by this part, in 

conjunction with relevant laws and 

other Federal Reserve policies, when (1) 

69930 Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 

7 12 U.S.C. 1861 et seq.

8The ‘‘Principles for Cooperative Central Bank 

Oversight and Multi-currency Netting and 

Settlement Schemes’’ are set out in the ‘‘Report of 

the Committee on Interbank Netting Schemes of the 

central banks of the Group of Ten countries’’

(Lamfalussy Report). The Lamfalussy Report is 

available at http://www.bis.org/cpss/cpsspubl.htm.

9The ‘next’ twelve-month period is determined 

by reference to the date a determination is being 

made as to whether the policy applies to a 

particular system. Aggregate gross value of U.S 

dollar-denominated transactions refers to the total 

dollar value of individual U.S. dollar transactions 

settled in the system which also represents the sum 

of total U.S. dollar debits (or credits) to all 

participants prior to or in absence of any netting of 

transactions.

10A system includes all of the governance, 

management, legal and operational arrangements 

used to effect settlement as well as the relevant 

parties to such arrangements, such as the system 

operator, system participants, and system owners. 

The types of systems that may fall within the scope 

of this policy include, but are not limited to, largevalue funds transfer systems, automated 

clearinghouse (ACH) systems, check 

clearinghouses, and credit and debit card settlement 

systems, as well as central counterparties, clearing 

corporations, and central depositories for securities 

transactions. For purposes of this policy, the system 

operator is the entity that manages and oversees the 

operations of the system. For the definition of 

financial institution, see footnote 5.

11The daily gross value threshold will be 

calculated on a U.S. dollar equivalent basis.

12The Board may ask a system approaching the 

policy threshold to provide limited information on 

trends in its gross settlement activity to determine 

when that system might become subject to the 

policy. Systems approaching the threshold should 

anticipate meeting the expectations of this policy.

supervising state member banks, bank 

holding companies, and clearinghouse 

arrangements, including the exercise of 

authority under the Bank Service 

Company Act, where applicable,7 (2) 

setting the terms and conditions for the 

use of Federal Reserve payments and 

settlement services by system operators 

and participants, (3) developing and 

applying policies for the provision of 

intraday credit to Reserve Bank account 

holders, and (4) interacting with other 

domestic and foreign financial system 

authorities on payments and settlement 

risk management issues. The Board’s 

adoption of this policy is not intended 

to exert or create new supervisory or 

regulatory authority over any particular 

class of institutions or arrangements 

where the Board does not currently have 

such authority.

Where the Board does not have direct 

or exclusive supervisory or regulatory 

authority over systems covered by this 

policy, it will work with other domestic 

and foreign financial system authorities 

to promote effective risk management in 

payments and securities settlement 

systems. The Board encourages other 

relevant authorities to consider the 

principles embodied in this policy 

when evaluating the payments and 

securities settlement risks posed by and 

to the systems and individual system 

participants that they oversee, 

supervise, or regulate. In working with 

foreign financial system authorities, the 

Board will be guided by Responsibility 

D of the Core Principles, 

Recommendation 18 of the 

Recommendations, and the ‘‘Principles 

for Cooperative Central Bank Oversight 

of Cross-border and Multi-currency 

Netting and Settlement Schemes’’ and 

related documents.8 The Board believes 

these international principles provide 

an appropriate framework for 

cooperating with foreign authorities to 

address risks in cross-border, 

multicurrency, and, where appropriate, 

offshore payments and securities 

settlement systems.

A. Scope 

This policy applies to public- and 

private-sector payments and securities 

settlement systems that expect to settle 

a daily aggregate gross value of U.S. 

dollar-denominated transactions 

exceeding $5 billion on any day during 

the next 12 months.9 For purposes of 

this policy, a payments or securities 

settlement system is considered to be a 

multilateral arrangement (three or more 

participants) among financial 

institutions for the purposes of clearing, 

netting, and/or settling payments or 

securities transactions among 

themselves or between each of them and 

a central party, such as a system 

operator or central counterparty.10 In 

determining whether a particular 

arrangement meets this definition, the 

Board may consider, but will not be 

limited to, whether the arrangement 

exhibits one or more of the following 

characteristics: (1) A set of rules and 

procedures, common to all participants, 

that govern the clearing or settlement of 

payments or securities transactions, (2) 

a common technical infrastructure for 

conducting the clearing or settlement 

process, and (3) a risk management or 

capital structure where at least some 

losses would be borne by participants 

rather than the arrangement’s operator, 

central counterparty or guarantor, or 

shareholders or owners.

These systems may be organized, 

located, or operated within the United 

States (domestic systems), outside the 

United States (offshore systems), or both 

(cross-border systems) and may involve 

other currencies in addition to the U.S. 

dollar (multicurrency systems). The 

policy also applies to any system based 

or operated in the United States that 

engages in the settlement of non-U.S. 

dollar transactions if that system would 

be otherwise subject to the policy.11

This policy does not apply to bilateral 

relationships between financial 

institutions and their customers, such as 

traditional correspondent banking and 

correspondent securities clearing 

arrangements, including, for example, 

government securities clearing services 

provided to securities dealers by banks 

or correspondent clearing services 

provided by broker-dealers. The Board 

believes that these relationships do not 

constitute ‘‘a system’’ for purposes of 

this policy and that relevant safety and 

soundness issues associated with these 

relationships are more appropriately 

addressed through the supervisory and 

regulatory process. This policy also does 

not apply to clearance or settlement 

systems for exchange-traded futures and 

options that fall under the oversight of 

the Commodities and Futures Trading 

Commission or the Securities and 

Exchange Commission. 

B. General Policy Expectations

The Board expects payments and 

securities settlement systems within the 

scope of this policy to implement a risk 

management framework appropriate for 

the risks the system poses to the system 

operator, system participants, and other 

relevant parties as well as the financial 

system more broadly. A risk 

management framework is the set of 

objectives, policies, arrangements, 

procedures, and resources that a system 

employs to limit and manage risk. While 

there are a number of ways to structure 

a sound risk management framework, all 

frameworks should: 

• Clearly identify risks and set sound 

risk management objectives; 

• Establish sound governance 

arrangements; 

• Establish clear and appropriate 

rules and procedures; and, 

• Employ the resources necessary to 

achieve the system’s risk management 

objectives and implement effectively its 

rules and procedures. 

The Board also expects any system it 

deems to be systemically important both 

to establish a sound risk management 

framework and to comply with the more 

detailed standards set out in Section I.C. 

The Board will seek to understand how 

and whether systems subject to this 

policy achieve a sound risk management 

framework and, if relevant, meet the 

detailed standards for systemically 

important systems. In addition, the 

Board encourages systems with 

settlement activity below the $5 billion 

threshold, though not subject to this 

policy, to consider implementing some 

or all of the elements of a sound risk 

management framework.12

Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 69931

13Where systems have inter-relationships with or 

dependencies on other systems, system operators 

should also analyze whether and to what extent any 

cross-system risks arise and who bears them. 

Examples of such dependencies include, but are not 

limited to, financial and legal relationships, such as 

cross-margining, cross-collateralization, or crossguarantees, operational relationships, such as 

shared platforms or networks, inter-system links to 

move transactions between systems, and tiered 

settlement dependencies (e.g. reliance on a second 

system to settle net obligations).

14The internal audit function should be 

independent of those responsible for day-to-day 

operational and other business functions.

15Examples of key features that might be 

specified in a system’s rules and procedures are 

controls to limit participant-based risks, such as 

membership criteria based on participants’ financial 

and operational health, limits on settlement 

exposures, and the procedures and resources to 

hedge, margin, or collateralize settlement 

exposures. Other examples of key features might be 

business continuity requirements and loss 

allocation procedures.

16Such arrangements may also be subject to 

various supervisory guidelines, such as the 

‘‘Interagency Paper on Sound Practices to 

Strengthen the Resilience of the U.S. Financial 

System.’’ (68 FR 17809, April 11, 2003)

Identify Risks and Set Sound Risk 

Management Objectives. The first 

element of a sound risk management 

framework is the clear identification of 

all risks that have the potential to arise 

in or result from the system’s settlement 

process and the development of clear 

and transparent objectives regarding the 

system’s tolerance for and management 

of such risks. 

System operators should identify the 

forms of risk present in their system’s 

settlement process as well as the parties 

posing and bearing each risk. In 

particular, system operators should 

identify the risks posed to and borne by 

themselves, the system participants, and 

other key parties such as a system’s 

settlement banks, custody banks, and 

third-party service providers. System 

operators should also analyze whether 

risks might be imposed on other 

external parties and the financial system 

more broadly. 

In addition, system operators should 

analyze how risk is transformed or 

concentrated by the settlement process. 

System operators should also consider 

the possibility that attempts to limit one 

type of risk could lead to an increase in 

another type of risk. Moreover, system 

operators should be aware of risks that 

might be unique to certain instruments, 

participants, or market practices. 

System operators should also analyze 

how risks are correlated among 

instruments or participants.13

Based upon its clear identification of 

risks, a system should establish its risk 

tolerance, including the levels of risk 

exposure that are acceptable to the 

system operator, system participants, 

and other relevant parties. The system 

operator should then set risk 

management objectives that clearly 

allocate acceptable risks among the 

relevant parties and set out strategies to 

manage this risk. Risk management 

objectives should be consistent with the 

objectives of this policy, the system’s 

business purposes, and the type of 

instruments and markets for which the 

system clears and settles. Risk 

management objectives should also be 

communicated to and understood by 

both the system operator’s staff and 

system participants. 

System operators should re-evaluate 

their risks in conjunction with any 

major changes in the settlement process 

or operations, the instruments or 

transactions settled, a system’s rules or 

procedures, or the relevant legal and 

market environments. Systems should 

review their risk management objectives 

regularly to ensure that they are 

appropriate for the risks posed by the 

system, continue to be aligned with the 

system’s purposes, remain consistent 

with this policy, and are being 

effectively adhered to by the system 

operator and participants. 

Sound Governance Arrangements. 

Systems should have sound governance 

arrangements to implement and oversee 

their risk management frameworks. The 

responsibility for sound governance 

rests with a system operator’s board of 

directors or similar body and with the 

system operator’s senior management. 

Governance structures and processes 

should be transparent; enable the 

establishment of clear risk management 

objectives; set and enforce clear lines of 

responsibility and accountability for 

achieving these objectives; ensure that 

there is appropriate oversight of the risk 

management process; and enable the 

effective use of information reported by 

the system operator’s management, 

internal auditors, and external auditors 

to monitor the performance of the risk 

management process.14 Individuals 

responsible for governance should be 

qualified for their positions, understand 

their responsibilities, and understand 

their system’s risk management 

framework. Governance arrangements 

should also ensure that risk 

management information is shared in 

forms, and at times, that allow 

individuals responsible for governance 

to fulfill their duties effectively.

Clear and Appropriate Rules and 

Procedures. Systems should implement 

rules and procedures that are 

appropriate and sufficient to carry out 

the system’s risk management objectives 

and that have a well-founded legal 

basis. Such rules and procedures should 

specify the respective responsibilities of 

the system operator, system 

participants, and other relevant parties. 

Rules and procedures should establish 

the key features of a system’s settlement 

and risk management design and specify 

clear and transparent crisis management 

procedures and settlement failure 

procedures, if applicable.15

Employ Necessary Resources. Systems 

should ensure that the appropriate 

resources and processes are in place to 

allow them to achieve their risk 

management objectives and effectively 

implement their rules and procedures. 

In particular, the system operator’s staff 

should have the appropriate skills, 

information, and tools to apply the 

system’s rules and procedures and 

achieve the system’s risk management 

objectives. System operators should also 

ensure that their facilities and 

contingency arrangements, including 

any information system resources, are 

sufficient to meet their risk management 

objectives.16

The Board recognizes that payments 

and securities settlement systems differ 

widely in terms of form, function, scale, 

and scope of activities and that these 

characteristics result in differing 

combinations and levels of risks. Thus, 

the exact features of a system’s risk 

management framework should be 

tailored to the risks of that system. The 

Board also recognizes that the specific 

features of a risk management 

framework may entail trade-offs 

between efficiency and risk reduction 

and that payments and securities 

settlement systems will need to consider 

these trade-offs when designing 

appropriate rules and procedures. In 

considering such trade-offs, however, it 

is critically important that systems take 

into account the costs and risks that 

may be imposed on all relevant parties, 

including parties with no direct role in 

the system. 

To determine whether a system’s 

current or proposed risk management 

framework is consistent with this 

policy, the Board will seek to 

understand how a system achieves the 

four elements of a sound risk 

management framework set out above. 

In this context, it may be necessary for 

the Board to obtain information from 

system operators regarding their risk 

management framework, risk 

management objectives, rules and 

procedures, significant legal analyses, 

general risk analyses, analyses of the 

credit and liquidity effects of settlement 

disruptions, business continuity plans, 

crisis management procedures, and 

69932 Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 

17To facilitate analysis of settlement disruptions, 

systems with significant settlement flows may need 

to develop the capability to simulate credit and 

liquidity effects on participants and on the system 

resulting from one or more participant defaults, or 

other possible sources of settlement disruption. 

Such simulations may need to include, if 

appropriate, the effects of changes in market prices, 

volatilities, or other factors.

18The Board will separately inform systems 

subject to the policy as to whether they are or are 

not systemically important.

19The ‘‘Interagency Paper on Sound Practices to 

Strengthen the Resilience of the U.S. Financial 

System’’ defines critical financial markets as the 

markets for federal funds, foreign exchange, and 

commercial paper; U.S. government and agency 

securities; and corporate debt and equity securities.

20The Core Principles draw extensively on the 

previous work of the CPSS, most importantly the 

Report of the Committee on Interbank Netting 

Schemes of the Central Banks of the Group of Ten 

Countries (the Lamfalussy Minimum Standards). 

The Core Principles extend the Lamfalussy 

Minimum Standards by adding several principles 

and broadening the coverage to include 

systemically important payments systems of all 

types, including gross settlement systems and 

hybrid systems, operated by either the public or 

private sector. The Core Principles also address the 

responsibilities of central banks in applying the 

Core Principles.

other relevant documentation.17 It may 

also be necessary for the Board to obtain 

data or statistics on system activity on 

an ad-hoc or ongoing basis. All 

information provided to the Federal 

Reserve for the purposes of this policy 

will be handled in accordance with all 

applicable Federal Reserve policies on 

information security, confidentiality, 

and conflicts of interest. In seeking to 

obtain information and in determining 

whether a system’s risk management 

framework is consistent with this 

policy, the Board intends to minimize 

unnecessary burden on systems, and 

will coordinate its activities, if 

practicable, with supervisory attentions 

to the system.

C. Systemically Important Systems 

In addition to establishing a risk 

management framework that includes 

the key elements described above, the 

Board expects systemically important 

payments and securities settlement 

systems to comply with the detailed 

standards set out in this section.18 To 

determine whether a system is 

systemically important for purposes of 

this policy, the Board may consider, but 

will not be limited to, one or more of the 

following factors:

• Whether the system has the 

potential to create significant liquidity 

disruptions or dislocations should it fail 

to perform or settle as expected; 

• Whether the system has the 

potential to create large credit or 

liquidity exposures relative to 

participants’ financial capacity; 

• Whether the system settles a high 

proportion of large-value transactions; 

• Whether the system settles 

transactions for critical financial 

markets; 19

• Whether the system provides 

settlement for other systems; 

• Whether the system is the only 

system or one of a very few systems for 

settlement of a given financial 

instrument. 

Systemically important systems are 

expected to meet specific risk 

management standards because of their 

potential to cause major disruptions in 

the financial system. The Board, 

therefore, expects systemically 

important payments systems to comply 

with the standards listed in section 

I.C.1. Securities settlement systems of 

systemic importance are expected to 

comply with the standards listed in 

section I.C.2. Some systemically 

important systems, however, may 

present an especially high degree of 

systemic risk, by virtue of their high 

volume of large-value transactions or 

central role in the operation of critical 

financial markets. Because all systems 

are expected to employ a risk 

management framework that is 

appropriate for their risks, the Board 

may expect these systems to exceed the 

standards set out below.

The Board acknowledges that 

payments and securities settlement 

systems vary in terms of the range of 

instruments they settle and markets they 

serve. It also recognizes that systems 

may operate under different legal and 

regulatory constraints and within 

particular market infrastructures or 

institutional frameworks. The Board 

will consider these factors when 

assessing how a systemically important 

system addresses a particular standard. 

The Board’s standards for 

systemically important payments and 

securities settlement systems are based, 

respectively, on the Core Principles and 

the Recommendations. The Core 

Principles and the Recommendations 

are two examples of recent initiatives 

pursued by the international financial 

community to strengthen the global 

financial infrastructure.20 The Federal 

Reserve worked closely with other 

central banks to develop and draft the 

Core Principles and with other central 

banks and securities regulators to 

develop and draft the 

Recommendations. These standards are 

part of the Financial Stability Forum’s 

Compendium of Standards that have 

been widely recognized, supported, and 

endorsed by U.S. authorities as integral 

to strengthening the stability of the 

financial system.

1. Standards for Systemically Important 

Payments Systems 

1. The system should have a wellfounded legal basis under all relevant 

jurisdictions. 

2. The system’s rules and procedures 

should enable participants to have a 

clear understanding of the system’s 

impact on each of the financial risks 

they incur through participation in it. 

3. The system should have clearly 

defined procedures for the management 

of credit risks and liquidity risks, which 

specify the respective responsibilities of 

the system operator and the participants 

and which provide appropriate 

incentives to manage and contain those 

risks. 

4. The system should provide prompt 

final settlement on the day of value, 

preferably during the day and at a 

minimum at the end of the day. 

5. A system in which multilateral 

netting takes place should, at a 

minimum, be capable of ensuring the 

timely completion of daily settlements 

in the event of an inability to settle by 

the participant with the largest single 

settlement obligation. 

6. Assets used for settlement should 

preferably be a claim on the central 

bank; where other assets are used, they 

should carry little or no credit risk and 

little or no liquidity risk. 

7. The system should ensure a high 

degree of security and operational 

reliability and should have contingency 

arrangements for timely completion of 

daily processing. 

8. The system should provide a means 

of making payments which is practical 

for its users and efficient for the 

economy. 

9. The system should have objective 

and publicly disclosed criteria for 

participation, which permit fair and 

open access. 

10. The system’s governance 

arrangements should be effective, 

accountable and transparent. 

2. Standards for Systemically Important 

Securities Settlement Systems 

The CPSS–IOSCO Recommendations 

apply to the full set of institutional 

arrangements for confirmation, 

clearance, and settlement of securities 

transactions, including those related to 

market convention and pre-settlement 

activities. As such, not all of these 

standards apply to all systems. 

Moreover, the standards applicable to a 

particular system also will vary based 

on the structure of the market and the 

system’s design. 

While the Board endorses the CPSS–

IOSCO Recommendations in their 

entirety, its primary interest for 

Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 69933

21The CPSS and the Technical Committee of 

IOSCO have recently developed a separate set of 

Recommendations for Central Counterparties, 

which are intended to supersede those elements of 

the Recommendations for Securities Settlement 

Systems that are applicable to central 

counterparties. The Board will review the new 

recommendations and determine whether it is 

appropriate to incorporate them into this policy.

22CPSS and Technical Committee of IOSCO 

(November 2002). Available at http://www.bis.org.

23Available at http://www.federalreserve.gov/

paymentsystems/PSR.

purposes of this policy is in those 

standards related to the settlement 

aspects of securities transactions, 

including the role of central 

counterparties and central depositories, 

the delivery of securities against 

payment, and related risks.21 The Board 

expects that systems engaged in the 

management or conduct of settling 

securities transactions and their 

participants to comply with the 

expectations set forth in the applicable 

Recommendations. Securities settlement 

systems also may wish to consult the 

Assessment Methodology for 

‘‘Recommendations for Securities 

Settlement Systems’’ for further 

guidance on each standard.22

1. Securities settlement systems 

should have a well-founded, clear and 

transparent legal basis in the relevant 

jurisdictions. 

2. Confirmation of trades between 

direct market participants should occur 

as soon as possible after trade execution, 

but no later than the trade date (T+0). 

Where confirmation of trades by 

indirect market participants (such as 

institutional investors) is required, it 

should occur as soon as possible after 

the trade execution, preferably on T+0, 

but no later than T+1. 

3. Rolling settlement should be 

adopted in all securities markets. Final 

settlement should occur no later than 

T+3. The benefits and costs of a 

settlement cycle shorter than T+3 

should be evaluated. 

4. The benefits and costs of a central 

counterparty should be evaluated. 

Where such a mechanism is introduced, 

the central counterparty should 

rigorously control the risks it assumes. 

5. Securities lending and borrowing 

(or repurchase agreements and other 

economically equivalent transactions) 

should be encouraged as a method for 

expediting the settlement of securities 

transactions. Barriers that inhibit the 

practice of lending securities for this 

purpose should be removed. 

6. Securities should be immobilized 

or dematerialized and transferred by 

book entry in a central securities 

depository to the greatest extent 

possible. 

7. Central securities depositories 

should eliminate principal risk by 

linking securities transfers to funds 

transfers in a way that achieves delivery 

versus payment. 

8. Final settlement should occur no 

later than the end of the settlement day. 

Intraday or real time finality should be 

provided where necessary to reduce 

risks. 

9. Central securities depositories that 

extend intraday credit to participants, 

including central securities depositories 

that operate net settlement systems, 

should institute risk controls that, at a 

minimum, ensure timely settlement in 

the event that the participant with the 

largest payment obligation is unable to 

settle. The most reliable set of controls 

is a combination of collateral 

requirements and limits. 

10. Assets used to settle the ultimate 

payment obligations arising from 

securities transactions should carry 

little or no credit or liquidity risk. If 

central bank money is not used, steps 

must be taken to protect central 

securities depository members from 

potential losses and liquidity pressures 

arising from the failure of the cash 

settlement agent whose assets are used 

for that purpose. 

11. Sources of operational risk arising 

in the clearing and settlement process 

should be identified and minimized 

through the development of appropriate 

systems, controls and procedures. 

Systems should be reliable and secure, 

and have adequate, scalable capacity. 

Contingency plans and backup facilities 

should be established to allow for the 

timely recovery of operations and 

completion of the settlement process. 

12. Entities holding securities in 

custody should employ accounting 

practices and safekeeping procedures 

that fully protect customers’ securities. 

It is essential that customers’ securities 

be protected against the claims of a 

custodian’s creditors. 

13. Governance arrangements for 

central securities depositories and 

central counterparties should be 

designed to fulfill public interest 

requirements and to promote the 

objectives of owners and users. 

14. Central securities depositories and 

central counterparties should have 

objective and publicly disclosed criteria 

for participation that permit fair and 

open access. 

15. While maintaining safe and secure 

operations, securities settlement 

systems should be cost-effective in 

meeting the requirements of users. 

16. Securities settlement systems 

should use or accommodate the relevant 

international communication 

procedures and standards in order to 

facilitate efficient settlement of crossborder transactions. 

17. Central securities depositories and 

central counterparties should provide 

market participants with sufficient 

information for them to identify and 

evaluate accurately the risks and costs 

associated with using the central 

securities depository or central 

counterparty services. 

18. Securities settlement systems 

should be subject to transparent and 

effective regulation and oversight. 

Central banks and securities regulators 

should cooperate with each other and 

with other relevant authorities. 

19. Central securities depositories that 

establish links to settle cross-border 

trades should design and operate such 

links to reduce effectively the risks 

associated with cross-border settlement. 

II. Federal Reserve Daylight Credit 

Policies 

This part outlines the methods used 

to control intraday overdraft exposures 

in Federal Reserve accounts. These 

methods include limits on daylight 

overdrafts in institutions’ Federal 

Reserve accounts and collateralization, 

in certain situations, of daylight 

overdrafts at the Federal Reserve. 

To assist institutions in implementing 

this part of the policy, the Federal 

Reserve has prepared two documents: 

the Overview of the Federal Reserve’s 

Payments System Risk Policy on 

Daylight Credit (Overview) and the 

Guide to the Federal Reserve’s Payments 

System Risk Policy on Daylight Credit

(Guide).23 The Overview summarizes 

the Board’s policy on the provision of 

daylight credit, including net debit caps 

and daylight overdraft fees, and is 

intended for use by institutions that 

incur only small and infrequent daylight 

overdrafts. The Guide explains in detail 

how these policies apply to different 

institutions and includes procedures for 

completing a self-assessment and filing 

a cap resolution, as well as information 

on other aspects of the policy.

A. Daylight Overdraft Definition and 

Measurement 

A daylight overdraft occurs when an 

institution’s Federal Reserve account is 

in a negative position during the 

business day. The Reserve Banks use an 

ex post system to measure daylight 

overdrafts in institutions’ Federal 

Reserve accounts. Under this ex post 

measurement system, certain 

transactions, including Fedwire funds 

transfers, book-entry securities transfers, 

and net settlement transactions, are 

posted as they are processed during the 

business day. Other transactions, 

69934 Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 

24This schedule of posting rules does not affect 

the overdraft restrictions and overdraftmeasurement provisions for nonbank banks 

established by the Competitive Equality Banking 

Act of 1987 and the Board’s Regulation Y (12 CFR 

225.52).

25The Reserve Banks act as fiscal agents for 

certain entities, such as government-sponsored 

enterprises (GSEs) and international organizations, 

whose securities are Fedwire-eligible but are not 

obligations of, or fully guaranteed as to principal 

and interest by, the United States. The GSEs 

include Fannie Mae, the Federal Home Loan 

Mortgage Corporation (Freddie Mac), entities of the 

Federal Home Loan Bank System (FHLBS), the 

Farm Credit System, the Federal Agricultural 

Mortgage Corporation (Farmer Mac), the Student 

Loan Marketing Association (Sallie Mae), the 

Financing Corporation, and the Resolution Funding 

Corporation. The international organizations 

include the World Bank, the Inter-American 

Development Bank, the Asian Development Bank, 

and the African Development Bank. The Student 

Loan Marketing Association Reorganization Act of 

1996 requires Sallie Mae to be completely 

privatized by 2008; however, Sallie Mae plans to 

complete privatization by September 2006. Upon 

privatization, the Reserve Banks will no longer act 

as fiscal agents for new issues of Sallie Mae 

securities, and the new Sallie Mae will not be 

considered a GSE.

26The term ‘‘interest and redemption payments’’

refers to payments of principal, interest, and 

redemption on securities maintained on the 

Fedwire Securities Service.

27The Reserve Banks will post these transactions, 

as directed by the issuer, provided that the issuer’s 

Federal Reserve account contains funds equal to or 

in excess of the amount of the interest and 

redemption payments to be made. In the normal 

course, if a Reserve Bank does not receive funding 

from an issuer for the issuer’s interest and 

redemption payments by the established cut-off 

hour of 4 p.m. eastern time on the Fedwire 

Securities Service, the issuer’s payments will not be 

processed on that day.

28Electronic payments for credits on these 

securities will post according to the posting rules 

for the mechanism through which they are 

processed, as outlined in this policy. However, the 

majority of these payments are made by check and 

will be posted according to the established check 

posting rules as set forth in this policy.

29 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.

30The 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.

31On rare occasions, the Treasury may announce 

withdrawals in advance that are based on 

institutions’ closing balances on the withdrawal 

date. The Federal Reserve will post these 

withdrawals after the close of Fedwire.

32For purposes of this policy, government 

agencies are those entities (other than the U.S. 

Treasury) for which the Reserve Banks act as fiscal 

agents and whose securities are obligations of, or 

fully guaranteed as to principal and interest by, the 

United States.

33Electronic payments for credits on these 

securities will post by 9:15 a.m. eastern time; 

however, the majority of these payments are made 

by check and will be posted according to the 

established check posting rules as set forth in this 

policy.

34See footnote 25.

35See footnote 33.

36Original issues of government agency, 

government-sponsored enterprise, or international 

organization securities are delivered as book-entry 

securities transfers and will be posted when the 

securities are delivered to the purchasing 

institutions.

37This does not include electronic check 

presentments, which are posted at 1 p.m. local time 

and hourly thereafter. Paper check presentments are 

posted on the hour at least one hour after 

presentment. Paper checks presented before 10:01 

a.m. eastern time will be posted at 11 a.m. eastern 

time. Presentment times will be based on surveys 

of endpoints’ scheduled courier deliveries and so 

including ACH and check transactions, 

are posted to institutions’ accounts 

according to a defined schedule. The 

following table presents the schedule 

used by the Federal Reserve for posting 

transactions to institutions’ accounts for 

purposes of measuring daylight 

overdrafts. 

Procedures for Measuring Daylight 

Overdrafts 24

Opening Balance (Previous Day’s 

Closing Balance) 

Post throughout business day:

± Fedwire funds transfers. 

± Fedwire book-entry securities 

transfers. 

± National Settlement Service entries.

Post throughout business day 

(beginning July 20, 2006):

+ Fedwire book-entry interest and 

redemption payments on securities 

that are not obligations of, or fully 

guaranteed as to principal and interest 

by, the United States.25 26 27

+ Electronic payments for matured 

coupons and definitive securities that 

are not obligations of, or fully 

guaranteed as to principal and interest 

by, the United States.28

Post at 8:30 a.m. eastern time:

± Government and commercial ACH 

credit transactions.29

+ Treasury Electronic Federal Tax 

Payment System (EFTPS) investments 

from ACH credit 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).30

Post at 8:30 a.m. eastern time and 

hourly, on the half-hour, thereafter:

± Main account administrative 

investment or withdrawal from TIP. 

± Special Direct Investment (SDI) 

administrative investment or 

withdrawal from TIP. 

+ 31 CFR part 202 account deposits 

from TIP. 

¥ Uninvested paper tax (PATAX) 

deposits from TIP. 

¥ Main account balance limit 

withdrawals from TIP. 

¥ Collateral deficiency withdrawals 

from TIP. 

¥ 31 CFR part 202 deficiency 

withdrawals from TIP.

Post at 8:30 a.m., 1 p.m., and 6:30 

p.m. eastern time:

¥ Main account Treasury withdrawals 

from TIP.31

Post by 9:15 a.m. eastern time:

+ U.S. Treasury and government agency 

Fedwire book-entry interest and 

redemption payments.32

+ Electronic payments for U.S. Treasury 

and government agency matured 

coupons and definitive securities.33

Post by 9:15 a.m. eastern time (until 

July 20, 2006):

+ Fedwire book-entry interest and 

redemption payments on securities 

that are not obligations of, or fully 

guaranteed as to principal and interest 

by, the United States.34

+ Electronic payments for matured 

coupons and definitive securities that 

are not obligations of, or fully 

guaranteed as to principal and interest 

by, the United States.35

Post beginning at 9:15 a.m. eastern 

time:

¥ Original issues of Treasury 

securities.36

Post at 9:30 a.m. eastern time and 

hourly, on the half-hour, thereafter:

+ Federal Reserve Electronic Tax 

Application (FR–ETA) value Fedwire 

investments from TIP.

Post at 11 a.m. eastern time:

± ACH debit transactions. 

+ EFTPS investments from ACH debit 

transactions.

Post at 11 a.m. eastern time and 

hourly thereafter:

±Commercial check transactions, 

including returned checks.37, 38

Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 69935

will occur at the same time each day for a particular 

institution. 

38 Institutions must choose one of two checkcredit posting options: (1) All credits posted at a 

single, float-weighted posting time, or (2) fractional 

credits posted throughout the day. The first option 

allows an institution to receive all of its check 

credits at a single time for each type of cash letter. 

This time may not necessarily fall on the clock 

hour. The second option lets the institution receive 

a portion of its available check credits on the clock 

hours between 11 a.m. and 6 p.m. eastern time. The 

option selected applies to all check deposits posted 

to an institution’s account. Reserve Banks will 

calculate crediting fractions and float-weighted 

posting times for each time zone based on surveys. 

Credits for mixed cash letters and other Fed cash 

letters are posted using the crediting fractions or the 

float-weighted posting times for the time zone of the 

Reserve Bank servicing the depositing institution. 

For separately sorted deposits, credits are posted 

using the posting times for the time zone of the 

Reserve Bank servicing the payor institution.

39Corrections are account entries made to correct 

discrepancies detected by a Reserve Bank during 

the initial processing of checks.

40Adjustments are account entries made to 

correct discrepancies detected by an institution 

after entries have posted to its account and are 

made at the request of the institution.

41The Federal Reserve Banks will post debits to 

institutions’ accounts for electronic check 

presentments made before 12 p.m. local time at 1 

p.m. local time. The Reserve Banks will post 

presentments made after 12 p.m. local time on the 

next clock hour that is at least one hour after 

presentment takes place but no later than 3 p.m. 

local time.

42The Federal Reserve Banks will process and 

post Treasury-authorized penalty abatements on 

Thursdays. In the event that Thursday is a holiday, 

the Federal Reserve Banks will process and post 

Treasury-authorized penalty abatements on the 

following business day.

43A change in the length of the scheduled 

Fedwire operating day should not significantly 

change the amount of fees charged because the 

effective daily rate is applied to average daylight 

overdrafts, whose calculation would also reflect the 

change in the operating day.

44Under the current 21.5-hour Fedwire operating 

day, the effective daily daylight-overdraft rate is 

truncated to 0.0000089.

45Under the current 21.5-hour Fedwire operating 

day, the effective daily deductible rate is rounded 

to 0.0000042.

±Check corrections amounting to $1 

million or more.39

+ Currency and coin deposits. 

+ Credit adjustments amounting to $1 

million or more.40

Post at 12:30 p.m. eastern time and 

hourly, on the half-hour, thereafter:

+ Dynamic investments from TIP.

Post by 1 p.m. eastern time:

+ Same-day Treasury investments.

Post at 1 p.m. local time and hourly 

thereafter:

¥ Electronic check presentments.41

Post at 5 p.m. eastern time:

+ Treasury checks, postal money orders, 

and EZ-Clear savings bond 

redemptions in separately sorted 

deposits; these items must be 

deposited by 4 p.m. eastern time. 

+ Local Federal Reserve Bank checks; 

these items must be presented before 

3 p.m. eastern time. 

± Same-day ACH transactions; these 

transactions include ACH return 

items, check-truncation items, and 

flexible-settlement items.

Post at 6:30 p.m. eastern time: 42

+ Penalty abatements from TIP.

Post after the close of Fedwire Funds 

Service:

± All other transactions. These 

transactions include the following: 

local Federal Reserve Bank checks 

presented after 3 p.m. eastern time but 

before 3 p.m. local time; noncash 

collection; currency and coin 

shipments; small-dollar credit 

adjustments; and all debit 

adjustments. Discount-window loans 

and repayments are normally posted 

after the close of Fedwire as well; 

however, in unusual circumstances a 

discount window loan may be posted 

earlier in the day with repayment 24 

hours later, or a loan may be repaid 

before it would otherwise become 

due. 

Equals: Closing Balance. 

B. Pricing 

Reserve Banks charge institutions for 

daylight overdrafts incurred in their 

Federal Reserve accounts. For each twoweek reserve-maintenance period, the 

Reserve Banks calculate and assess 

daylight overdraft fees, which are equal 

to the sum of any daily daylight 

overdraft charges during the period. 

Daylight overdraft fees are calculated 

using an annual rate of 36 basis points, 

quoted on the basis of a 24-hour day. To 

obtain the effective annual rate for the 

standard Fedwire operating day, the 36-

basis-point annual rate is multiplied by 

the fraction of a 24-hour day during 

which Fedwire is scheduled to operate. 

For example, under a 21.5-hour 

scheduled Fedwire operating day, the 

effective annual rate used to calculate 

daylight overdraft fees equals 32.25 

basis points (36 basis points multiplied 

by 21.5/24).43 The effective daily rate is 

calculated by dividing the effective 

annual rate by 360.44 An institution’s 

daily daylight overdraft charge is equal 

to the effective daily rate multiplied by 

the institution’s average daily daylight 

overdraft minus a deductible valued at 

the deductible’s effective daily rate.

An institution’s average daily daylight 

overdraft is calculated by dividing the 

sum of its negative Federal Reserve 

account balances at the end of each 

minute of the scheduled Fedwire 

operating day by the total number of 

minutes in the scheduled Fedwire 

operating day. In this calculation, each 

positive end-of-minute balance in an 

institution’s Federal Reserve account is 

set to equal zero. 

The daily daylight overdraft charge is 

reduced by a deductible, valued at the 

effective daily rate for a 10-hour 

operating day. The deductible equals 10 

percent of a capital measure (see section 

II.C.3., ‘‘Capital measure’’). Because the 

effective daily rate applicable to the 

deductible is kept constant at the 10-

hour-operating-day rate, any changes to 

the scheduled Fedwire operating day 

should not significantly affect the value 

of the deductible.45 Reserve Banks will 

waive fees of $25 or less in any twoweek reserve-maintenance period. 

Certain institutions are subject to a 

penalty fee and modified daylight 

overdraft fee calculation as described in 

section II.E.

C. Net Debit Caps 

1. Definition 

To limit the aggregate amount of 

daylight credit that the Reserve Banks 

extend, each institution incurring 

daylight overdrafts in its Federal 

Reserve account must adopt a net debit 

cap, that is, a ceiling on the 

uncollateralized daylight overdraft 

position that it can incur during a given 

interval. If an institution’s daylight 

overdrafts generally do not exceed the 

lesser of $10 million or 20 percent of its 

capital measure, the institution may 

qualify for the exempt-from-filing cap. 

An institution must be financially 

healthy and have regular access to the 

discount window in order to adopt a net 

debit cap greater than zero or qualify for 

the filing exemption.

An institution’s cap category and 

capital measure determine the size of its 

net debit cap. More specifically, the net 

debit cap is calculated as an 

institution’s cap multiple times its 

capital measure:

net debit cap = cap multiple × capital 

measure

Cap categories (see section II.C.2., 

‘‘Cap categories’’) and their associated 

cap levels, set as multiples of capital 

measure, are listed below:

NET DEBIT CAP MULTIPLES

Cap category Single day Two-week 

average 

High .............. 2.25 .............. 1.50 

Above average.1.875 ............ 1.125 

Average ........ 1.125 ............ 0.75 

De minimis ... 0.40 .............. 0.40 

Exempt-fromfiling46.$10 million or 

0.20.

$10 million or 

0.20

69936 Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 

47The two-week period is the two-week reservemaintenance period. The number of days used in 

calculating the average daylight overdraft over this 

period is the number of business days the 

institution’s Reserve Bank is open during the 

reserve-maintenance period.

48This assessment should be done on an 

individual-institution basis, treating as separate 

entities each commercial bank, each Edge 

corporation (and its branches), each thrift 

institution, and so on. An exception is made in the 

case of U.S. branches and agencies of FBOs. 

Because these entities have no existence separate 

from the FBO, all the U.S. offices of FBOs 

(excluding U.S.-chartered bank subsidiaries and 

U.S.-chartered Edge subsidiaries) should be treated 

as a consolidated family relying on the FBO’s 

capital.

49An insured depository institution is (1) ‘‘well 

capitalized’’ if it significantly exceeds the required 

minimum level for each relevant capital measure, 

(2) ‘‘adequately capitalized’’ if it meets the required 

minimum level for each relevant capital measure, 

(3) ‘‘undercapitalized’’ if it fails to meet the 

required minimum level for any relevant capital 

measure, (4) ‘‘significantly undercapitalized’’ if it is 

significantly below the required minimum level for 

any relevant capital measure, or (5) ‘‘critically 

undercapitalized’’ if it fails to meet any leverage 

limit (the ratio of tangible equity to total assets) 

specified by the appropriate Federal banking 

agency, in consultation with the FDIC, or any other 

relevant capital measure established by the agency 

to determine when an institution is critically 

undercapitalized (12 U.S.C. 1831o).

50An FBO should undergo the same selfassessment process as a domestic bank in 

determining a net debit cap for its U.S. branches 

and agencies. Many FBOs, however, do not have the 

same management structure as U.S. institutions, 

and adjustments should be made as appropriate. If 

an FBO’s board of directors has a more limited role 

to play in the bank’s management than a U.S. board 

has, the self-assessment and cap category should be 

reviewed by senior management at the FBO’s head 

office that exercises authority over the FBO 

equivalent to the authority exercised by a board of 

directors over a U.S. institution. In cases in which 

the board of directors exercises authority equivalent 

to that of a U.S. board, cap determination should 

be made by the board of directors.

51 In addition, for FBOs, the file that is made 

available for examiner review by the U.S. offices of 

an FBO should contain the report on the selfassessment that the management of U.S. operations 

made to the FBO’s senior management and a record 

of the appropriate senior management’s response or 

the minutes of the meeting of the FBO’s board of 

directors or other appropriate management group, at 

which the self-assessment was discussed.

52Between examinations, examiners or Reserve 

Bank staff may contact an institution about its cap 

if there is other relevant information, such as 

statistical or supervisory reports, that suggests there 

may have been a change in the institution’s 

financial condition.

NET DEBIT CAP MULTIPLES—

Continued

Cap category Single day Two-week 

average 

Zero .............. 0.0 ................ 0.0 

46The net debit cap for the exempt-from-filing category is equal to the lesser of $10 million or 0.20 multiplied by the institution’s capital measure. 

An institution is expected to avoid 

incurring daylight overdrafts whose 

daily maximum level, averaged over a 

two-week period, would exceed its twoweek average cap, and, on any day, 

would exceed its single-day cap.47 The 

two-week average cap provides 

flexibility, in recognition that 

fluctuations in payments can occur from 

day to day. The purpose of the higher 

single-day cap is to limit excessive 

daylight overdrafts on any day and to 

ensure that institutions develop internal 

controls that focus on their exposures 

each day, as well as over time.

The Board’s policy on net debit caps 

is based on a specific set of guidelines 

and some degree of examiner oversight. 

Under the Board’s policy, a Reserve 

Bank may limit or prohibit an 

institution’s use of Federal Reserve 

intraday credit if (1) the institution’s use 

of daylight credit is deemed by the 

institution’s supervisor to be unsafe or 

unsound; (2) the institution does not 

qualify for a positive net debit cap (see

section II.C.2., ‘‘Cap categories’’); or (3) 

the institution poses excessive risk to a 

Reserve Bank by incurring chronic 

overdrafts in excess of what the Reserve 

Bank determines is prudent. 

While capital measures differ, the net 

debit cap provisions of this policy apply 

to foreign banking organizations (FBOs) 

to the same extent that they apply to 

U.S. institutions. The Reserve Banks 

will advise home-country supervisors of 

the daylight overdraft capacity of U.S. 

branches and agencies of FBOs under 

their jurisdiction, as well as of other 

pertinent information related to the 

FBOs’ caps. The Reserve Banks will also 

provide information on the daylight 

overdrafts in the Federal Reserve 

accounts of FBOs’ U.S. branches and 

agencies in response to requests from 

home-country supervisors. 

2. Cap Categories 

The policy defines the following six 

cap categories, described in more detail 

below: high, above average, average, de 

minimis, exempt-from-filing, and zero. 

The high, above average, and average 

cap categories are referred to as ‘‘selfassessed’’ caps. 

a. Self-assessed. In order to establish 

a net debit cap category of high, above 

average, or average, an institution must 

perform a self-assessment of its own 

creditworthiness, intraday funds 

management and control, customer 

credit policies and controls, and 

operating controls and contingency 

procedures.48 The assessment of 

creditworthiness is based on the 

institution’s supervisory rating and 

Prompt Corrective Action (PCA) 

designation.49 An institution may 

perform a full assessment of its 

creditworthiness in certain limited 

circumstances, for example, if its 

condition has changed significantly 

since its last examination or if it 

possesses additional substantive 

information regarding its financial 

condition. An institution performing a 

self-assessment must also evaluate its 

intraday funds-management procedures 

and its procedures for evaluating the 

financial condition of and establishing 

intraday credit limits for its customers. 

Finally, the institution must evaluate its 

operating controls and contingency 

procedures to determine if they are 

sufficient to prevent losses due to fraud 

or system failures. The ‘‘Guide to the 

Federal Reserve’s Payments System Risk 

Policy’’ includes a detailed explanation 

of the self-assessment process.

Each institution’s board of directors 

must review that institution’s selfassessment and recommended cap 

category. The process of self-assessment, 

with board-of-directors review, should 

be conducted at least once in each 

twelve-month period. A cap 

determination may be reviewed and 

approved by the board of directors of a 

holding company parent of an 

institution, provided that (1) the selfassessment is performed by each entity 

incurring daylight overdrafts, (2) the 

entity’s cap is based on the measure of 

the entity’s own capital, and (3) each 

entity maintains for its primary 

supervisor’s review its own file with 

supporting documents for its selfassessment and a record of the parent’s 

board-of-directors review.50

In applying these guidelines, each 

institution should maintain a file for 

examiner review that includes (1) 

worksheets and supporting analysis 

used in its self-assessment of its own 

cap category, (2) copies of seniormanagement reports to the board of 

directors of the institution or its parent 

(as appropriate) regarding that selfassessment, and (3) copies of the 

minutes of the discussion at the 

appropriate board-of-directors meeting 

concerning the institution’s adoption of 

a cap category.51

As part of its normal examination, the 

institution’s examiners may review the 

contents of the self-assessment file.52

The objective of this review is to ensure 

that the institution has applied the 

guidelines appropriately and diligently, 

that the underlying analysis and method 

were reasonable, and that the resultant 

self-assessment was generally consistent 

with the examination findings. 

Examiner comments, if any, should be 

forwarded to the board of directors of 

the institution. The examiner, however, 

generally would not require a 

modification of the self-assessed cap 

Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 69937

53The term ‘‘U.S. capital equivalency’’ is used in 

this context to refer to the particular capital 

measure used to calculate net debit caps and does 

not necessarily represent an appropriate capital 

measure for supervisory or other purposes.

54The Gramm-Leach-Bliley Act defines a 

financial holding company as a bank holding 

company that meets certain eligibility requirements. 

In order for a bank holding company to become a 

financial holding company and be eligible to engage 

in the new activities authorized under the GrammLeach-Bliley Act, the Act requires that all 

depository institutions controlled by the bank 

holding company be well capitalized and well 

managed (12 U.S.C. 1841(p)). With regard to a 

foreign bank that operates a branch or agency or 

owns or controls a commercial lending company in 

the United States, the Act requires the Board to 

apply comparable capital and management 

standards that give due regard to the principle of 

national treatment and equality of competitive 

opportunity (12 U.S.C. 1843(l)).

55The SOSA ranking is composed of four factors, 

including the FBO’s financial condition and 

prospects, the system of supervision in the FBO’s 

home country, the record of the home country’s 

government in support of the banking system or 

other sources of support for the FBO; and transfer 

risk concerns. Transfer risk relates to the FBO’s 

ability to access and transmit U.S. dollars, which 

is an essential factor in determining whether an 

FBO can support its U.S. operations. The SOSA 

ranking is based on a scale of 1 through 3, with 1 

representing the lowest level of supervisory 

concern.

category, but rather would inform the 

appropriate Reserve Bank of any 

concerns. The Reserve Bank would then 

decide whether to modify the cap 

category. For example, if the 

institution’s level of daylight overdrafts 

constitutes an unsafe or unsound 

banking practice, the Reserve Bank 

would likely assign the institution a 

zero net debit cap and impose 

additional risk controls.

The contents of the self-assessment 

file will be considered confidential by 

the institution’s examiner. Similarly, the 

Federal Reserve and the institution’s 

examiner will hold the actual cap level 

selected by the institution confidential. 

Net debit cap information should not be 

shared with outside parties or 

mentioned in any public documents; 

however, net debit cap information will 

be shared with the home-country 

supervisor of U.S. branches and 

agencies of foreign banks. 

The Reserve Banks will review the 

status of any institution with a selfassessed net debit cap that exceeds its 

cap during a two-week reservemaintenance period and will decide if 

the cap should be maintained or if 

additional action should be taken (see

section II.F., ‘‘Monitoring’’). 

b. De minimis. Many institutions 

incur relatively small overdrafts and 

thus pose little risk to the Federal 

Reserve. To ease the burden on these 

small overdrafters of engaging in the 

self-assessment process and to ease the 

burden on the Federal Reserve of 

administering caps, the Board allows 

institutions that meet reasonable safety 

and soundness standards to incur de 

minimis amounts of daylight overdrafts 

without performing a self-assessment. 

An institution may incur daylight 

overdrafts of up to 40 percent of its 

capital measure if the institution 

submits a board-of-directors resolution. 

An institution with a de minimis cap 

must submit to its Reserve Bank at least 

once in each 12-month period a copy of 

its board-of-directors resolution (or a 

resolution by its holding company’s 

board) approving the institution’s use of 

daylight credit up to the de minimis 

level. The Reserve Banks will review the 

status of a de minimis cap institution 

that exceeds its cap during a two-week 

reserve-maintenance period and will 

decide if the de minimis cap should be 

maintained or if the institution will be 

required to perform a self-assessment for 

a higher cap. 

c. Exempt-from-filing. Institutions that 

only rarely incur daylight overdrafts in 

their Federal Reserve accounts that 

exceed the lesser of $10 million or 20 

percent of their capital measure are 

excused from performing selfassessments and filing board-ofdirectors resolutions with their Reserve 

Banks. This dual test of dollar amount 

and percent of capital measure is 

designed to limit the filing exemption to 

institutions that create only low-dollar 

risks to the Reserve Banks and that 

incur small overdrafts relative to their 

capital measure. 

The Reserve Banks will review the 

status of an exempt institution that 

incurs overdrafts in its Federal Reserve 

account in excess of $10 million or 20 

percent of its capital measure on more 

than two days in any two consecutive 

two-week reserve-maintenance periods. 

The Reserve Bank will decide if the 

exemption should be maintained or if 

the institution will be required to file for 

a cap. Granting of the exempt-fromfiling net debit cap is at the discretion 

of the Reserve Bank. 

d. Zero. Some financially healthy 

institutions that could obtain positive 

net debit caps choose to have zero caps. 

Often these institutions have very 

conservative internal policies regarding 

the use of Federal Reserve daylight 

credit or simply do not want to incur 

daylight overdrafts and any associated 

daylight overdraft fees. If an institution 

that has adopted a zero cap incurs a 

daylight overdraft, the Reserve Bank 

counsels the institution and may 

monitor the institution’s activity in real 

time and reject or delay certain 

transactions that would cause an 

overdraft. If the institution qualifies for 

a positive cap, the Reserve Bank may 

suggest that the institution adopt an 

exempt-from-filing cap or file for a 

higher cap if the institution believes that 

it will continue to incur daylight 

overdrafts. 

In addition, a Reserve Bank may 

assign an institution a zero net debit 

cap. Institutions that may pose special 

risks to the Reserve Banks, such as those 

without regular access to the discount 

window, those incurring daylight 

overdrafts in violation of this policy, or 

those in weak financial condition, are 

generally assigned a zero cap (see

section II.E.5., ‘‘Problem institutions’’). 

Recently-chartered institutions may also 

be assigned a zero net debit cap. 

3. Capital Measure 

As described above, an institution’s 

cap category and capital measure 

determine the size of its net debit cap. 

The capital measure used in calculating 

an institution’s net debit cap depends 

upon its chartering authority and homecountry supervisor. 

a. U.S.-chartered institutions. For 

institutions chartered in the United 

States, net debit caps are multiples of 

‘‘qualifying’’ or similar capital measures 

that consist of those capital instruments 

that can be used to satisfy risk-based 

capital standards, as set forth in the 

capital adequacy guidelines of the 

Federal financial regulatory agencies. 

All of the Federal financial regulatory 

agencies collect, as part of their required 

reports, data on the amount of capital 

that can be used for risk-based 

purposes—‘‘risk-based’’ capital for 

commercial banks, savings banks, and 

savings associations and total regulatory 

reserves for credit unions. Other U.S.-

chartered entities that incur daylight 

overdrafts in their Federal Reserve 

accounts should provide similar data to 

their Reserve Banks.

b. U.S. branches and agencies of 

foreign banks. For U.S. branches and 

agencies of foreign banks, net debit caps 

on daylight overdrafts in Federal 

Reserve accounts are calculated by 

applying the cap multiples for each cap 

category to the FBO’s U.S. capital 

equivalency measure.53 U.S. capital 

equivalency is equal to the following:

• 35 percent of capital for FBOs that 

are financial holding companies 

(FHCs).54

• 25 percent of capital for FBOs that 

are not FHCs and have a strength of 

support assessment ranking (SOSA) of 

1.55

• 10 percent of capital for FBOs that 

are not FHCs and are ranked a SOSA 2. 

• 5 percent of ‘‘net due to related 

depository institutions’’ for FBOs that 

are not FHCs and are ranked a SOSA 3. 

Granting a net debit cap, or any 

extension of intraday credit, to an 

69938 Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 

56The administrative Reserve Bank is responsible 

for the administration of Federal Reserve credit, 

reserves, and risk management policies for a given 

institution or other legal entity.

57 Institutions have some flexibility as to the 

specific types of collateral they may pledge to the 

Reserve Banks; however, all collateral must be 

acceptable to the Reserve Banks. The Reserve Banks 

may accept securities in transit on the Fedwire 

book-entry securities system as collateral to support 

the maximum daylight overdraft capacity level. 

Securities in transit refer to book-entry securities 

transferred over the Fedwire Securities Service that 

have been purchased by an institution but not yet 

paid for and owned by the institution’s customers. 

58 Institutions may consider applying for a 

maximum daylight overdraft capacity level for 

daylight overdrafts resulting from Fedwire funds 

transfers, Fedwire book-entry securities transfers, 

National Settlement Service entries, and ACH credit 

originations. Institutions incurring daylight 

overdrafts as a result of other payment activity may 

be eligible for administrative counseling flexibility 

(59 FR 54915–18, Nov. 2, 1994).

59Some potential alternatives available to an 

institution to address increased intraday credit 

needs include shifting funding patterns, delaying 

the origination of funds transfers, or transferring 

some payments processing business to a 

correspondent bank.

60Collateralized capacity, on any given day, 

equals the amount of collateral pledged to the 

Reserve Bank, not to exceed the difference between 

the institution’s maximum daylight overdraft 

capacity level and its single-day net debit cap. 61See footnote 25.

institution is at the discretion of the 

Reserve Bank. In the event a Reserve 

Bank grants a net debit cap or extends 

intraday credit to a financially healthy 

SOSA 3-ranked FBO, the Reserve Bank 

may require such credit to be fully 

collateralized, given the heightened 

supervisory concerns with SOSA 3-

ranked FBOs. 

D. Collateralized Capacity 

The Board recognizes that while net 

debit caps provide sufficient liquidity to 

most institutions, some institutions may 

still experience liquidity pressures. The 

Board believes it is important to provide 

an environment in which payment 

systems may function effectively and 

efficiently and to remove barriers, as 

appropriate, to foster risk-reducing 

payment system initiatives. 

Consequently, certain institutions with 

self-assessed net debit caps may pledge 

collateral to their administrative Reserve 

Banks to secure daylight overdraft 

capacity in excess of their net debit 

caps, subject to Reserve Bank 

approval.56,57 This policy is intended to 

provide extra liquidity through the 

pledge of collateral to the few 

institutions that might otherwise be 

constrained from participating in riskreducing payment system initiatives.58

The Board believes that requiring 

collateral allows the Federal Reserve to 

protect the public sector from additional 

credit risk. Additionally, providing 

extra liquidity to these few institutions 

should help prevent liquidity-related 

market disruptions.

An institution with a self-assessed net 

debit cap that wishes to expand its 

daylight overdraft capacity by pledging 

collateral should consult with its 

administrative Reserve Bank. 

Institutions that request daylight 

overdraft capacity beyond the net debit 

cap must have already explored other 

alternatives to address their increased 

liquidity needs.59 The Reserve Banks 

will work with an institution that 

requests additional daylight overdraft 

capacity to determine the appropriate 

maximum daylight overdraft capacity 

level. In considering the institution’s 

request, the Reserve Bank will evaluate 

the institution’s rationale for requesting 

additional daylight overdraft capacity as 

well as its financial and supervisory 

information. The financial and 

supervisory information considered may 

include, but is not limited to, capital 

and liquidity ratios, the composition of 

balance sheet assets, CAMELS or other 

supervisory ratings and assessments, 

and SOSA rankings (for U.S. branches 

and agencies of foreign banks). An 

institution approved for a maximum 

daylight overdraft capacity level must 

submit at least once in each twelvemonth period a board-of-directors 

resolution indicating its board’s 

approval of that level.

If the Reserve Bank approves an 

institution’s request, the Reserve Bank 

approves a maximum daylight overdraft 

capacity level. The maximum daylight 

overdraft capacity is defined as follows:

maximum daylight overdraft capacity = 

single-day net debit cap + 

collateralized capacity.60

An institution that has a self-assessed 

net debit cap and that has also been 

approved for a maximum daylight 

overdraft capacity level has a two-week 

average limit equal to its two-week 

average net debit cap plus its 

collateralized capacity, averaged over a 

two-week reserve-maintenance period. 

The single-day limit is equal to an 

institution’s single-day net debit cap 

plus its collateralized capacity. The 

institution should avoid incurring 

daylight overdrafts whose daily 

maximum level, averaged over a twoweek period, would exceed its twoweek average limit, and, on any day, 

would exceed its single-day limit. The 

Reserve Banks will review the status of 

any institution that exceeds its singleday or two-week limit during a twoweek reserve-maintenance period and 

will decide if the maximum daylight 

overdraft capacity should be maintained 

or if additional action should be taken 

(see section II.F., ‘‘Monitoring’’).

Institutions with exempt-from-filing 

and de minimis net debit caps may not

obtain additional daylight overdraft 

capacity by pledging collateral without 

first obtaining a self-assessed net debit 

cap. Likewise, institutions that have 

voluntarily adopted zero net debit caps 

may not obtain additional daylight 

overdraft capacity by pledging collateral 

without first obtaining a self-assessed 

net debit cap. Institutions that have 

been assigned a zero net debit cap by 

their administrative Reserve Bank are 

not eligible to apply for any daylight 

overdraft capacity. 

E. Special Situations 

Under the Board’s policy, certain 

institutions warrant special treatment 

primarily because of their charter types. 

As mentioned previously, an institution 

must have regular access to the discount 

window and be in sound financial 

condition in order to adopt a net debit 

cap greater than zero. Institutions that 

do not have regular access to the 

discount window include Edge and 

agreement corporations, bankers’ banks 

that are not subject to reserve 

requirements, limited-purpose trust 

companies, government-sponsored 

enterprises (GSEs), and certain 

international organizations.61

Institutions that have been assigned a 

zero cap by their Reserve Banks are also 

subject to special considerations under 

this policy based on the risks they pose. 

In developing its policy for these 

institutions, the Board has sought to 

balance the goal of reducing and 

managing risk in the payments system, 

including risk to the Federal Reserve, 

with that of minimizing the adverse 

effects on the payments operations of 

these institutions.

Regular access to the Federal Reserve 

discount window generally is available 

to institutions that are subject to reserve 

requirements. If an institution that is not 

subject to reserve requirements and thus 

does not have regular discount-window 

access were to incur a daylight 

overdraft, the Federal Reserve might end 

up extending overnight credit to that 

institution if the daylight overdraft were 

not covered by the end of the business 

day. Such a credit extension would be 

contrary to the quid pro quo of reserves 

for regular discount-window access as 

reflected in the Federal Reserve Act and 

in Board regulations. Thus, institutions 

that do not have regular access to the 

discount window should not incur 

daylight overdrafts in their Federal 

Reserve accounts. 

Certain institutions are subject to a 

daylight-overdraft penalty fee levied 

Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 69939

62Under the current 21.5-hour Fedwire operating 

day, the effective daily daylight-overdraft penalty 

rate is truncated to 0.0000338.

63While daylight overdraft fees are calculated 

differently for these institutions than for 

institutions that have regular access to the discount 

window, overnight overdrafts at Edge and 

agreement corporations, bankers’ banks that are not 

subject to reserve requirements, limited-purpose 

trust companies, GSEs, and international 

organizations are priced the same as overnight 

overdrafts at institutions that have regular access to 

the discount window.

64These institutions are organized under section 

25A of the Federal Reserve Act (12 U.S.C. 611–631) 

or have an agreement or undertaking with the Board 

under section 25 of the Federal Reserve Act (12 

U.S.C. 601–604(a)).

65For the purposes of this policy, a bankers’ bank 

is a depository institution that is not required to 

maintain reserves under the Board’s Regulation D 

(12 CFR part 204) because it is organized solely to 

do business with other financial institutions, is 

owned primarily by the financial institutions with 

which it does business, and does not do business 

with the general public. Such bankers’ banks also 

generally are not eligible for Federal Reserve Bank 

credit under the Board’s Regulation A (12 CFR 

201.2(c)(2)).

66For the purposes of this policy, a limitedpurpose trust company is a trust company that is 

a member of the Federal Reserve System but that 

does not meet the definition of ‘‘depository 

institution’’ in section 19(b)(1)(A) of the Federal 

Reserve Act (12 U.S.C. 461(b)(1)(A)).

against the average daily daylight 

overdraft incurred by the institution. 

These include Edge and agreement 

corporations, bankers’ banks that are not 

subject to reserve requirements, and 

limited-purpose trust companies. The 

annual rate used to determine the 

daylight-overdraft penalty fee is equal to 

the annual rate applicable to the 

daylight overdrafts of other institutions 

(36 basis points) plus 100 basis points 

multiplied by the fraction of a 24-hour 

day during which Fedwire is scheduled 

to operate (currently 21.5/24). The daily 

daylight-overdraft penalty rate is 

calculated by dividing the annual 

penalty rate by 360.62 The daylightoverdraft penalty rate applies to the 

institution’s average daily daylight 

overdraft in its Federal Reserve account. 

The daylight-overdraft penalty rate is 

charged in lieu of, not in addition to, the 

rate used to calculate daylight overdraft 

fees for institutions described in section 

II.B. Institutions that are subject to the 

daylight-overdraft penalty fee do not 

benefit from a deductible and are 

subject to a minimum fee of $25 on any 

daylight overdrafts incurred in their 

Federal Reserve accounts.63

1. Edge and Agreement Corporations 64

Edge and agreement corporations 

should refrain from incurring daylight 

overdrafts in their Federal Reserve 

accounts. In the event that any daylight 

overdrafts occur, the Edge or agreement 

corporation must post collateral to cover 

the overdrafts. In addition to posting 

collateral, the Edge or agreement 

corporation would be subject to the 

daylight-overdraft penalty rate levied 

against the average daily daylight 

overdrafts incurred by the institution, as 

described above.

This policy reflects the Board’s 

concerns that these institutions lack 

regular access to the discount window 

and that the parent company may be 

unable or unwilling to cover its 

subsidiary’s overdraft on a timely basis. 

The Board notes that the parent of an 

Edge or agreement corporation could 

fund its subsidiary during the day over 

Fedwire or the parent could substitute 

itself for its subsidiary on private 

systems. Such an approach by the 

parent could both reduce systemic risk 

exposure and permit the Edge or 

agreement corporation to continue to 

service its customers. Edge and 

agreement corporation subsidiaries of 

foreign banking organizations are 

treated in the same manner as their 

domestically owned counterparts. 

2. Bankers’ Banks 65

Bankers’ banks are exempt from 

reserve requirements and do not have 

regular access to the discount window. 

They do, however, have access to 

Federal Reserve payment services. 

Bankers’ banks should refrain from 

incurring daylight overdrafts and must 

post collateral to cover any overdrafts 

they do incur. In addition to posting 

collateral, a bankers’ bank would be 

subject to the daylight-overdraft penalty 

fee levied against the average daily 

daylight overdrafts incurred by the 

institution, as described above.

The Board’s policy for bankers’ banks 

reflects the Reserve Banks’ need to 

protect themselves from potential losses 

resulting from daylight overdrafts 

incurred by bankers’ banks. The policy 

also considers the fact that some 

bankers’ banks do not incur the costs of 

maintaining reserves as do some other 

institutions and do not have regular 

access to the discount window. 

Bankers’ banks may voluntarily waive 

their exemption from reserve 

requirements, thus gaining access to the 

discount window. Such bankers’ banks 

are free to establish net debit caps and 

would be subject to the same policy as 

other institutions. The policy set out in 

this section applies only to those 

bankers’ banks that have not waived 

their exemption from reserve 

requirements. 

3. Limited-Purpose Trust Companies 66

The Federal Reserve Act permits the 

Board to grant Federal Reserve 

membership to limited-purpose trust 

companies subject to conditions the 

Board may prescribe pursuant to the 

Act. As a general matter, member 

limited-purpose trust companies do not 

accept reservable deposits and do not 

have regular discount-window access. 

Limited-purpose trust companies 

should refrain from incurring daylight 

overdrafts and must post collateral to 

cover any overdrafts they do incur. In 

addition to posting collateral, limitedpurpose trust companies would be 

subject to the same daylight-overdraft 

penalty rate as other institutions that do 

not have regular access to the discount 

window.

4. Government-Sponsored Enterprises 

and International Organizations 

(Beginning July 20, 2006)

The Reserve Banks act as fiscal agents 

for certain GSEs and international 

organizations in accordance with federal 

statutes. These institutions generally 

have Federal Reserve accounts and issue 

securities over the Fedwire Securities 

Service. The securities of these 

institutions are not obligations of, or 

fully guaranteed as to principal and 

interest by, the United States. 

Furthermore, these institutions are not 

subject to reserve requirements and do 

not have regular access to the discount 

window. GSEs and international 

organizations should refrain from 

incurring daylight overdrafts and must 

post collateral to cover any daylight 

overdrafts they do incur. In addition to 

posting collateral, these institutions 

would be subject to the same daylightoverdraft penalty rate as other 

institutions that do not have regular 

access to the discount window. 

5. Problem Institutions 

For institutions that are in weak 

financial condition, the Reserve Banks 

will impose a zero cap. The Reserve 

Bank will also monitor the institution’s 

activity in real time and reject or delay 

certain transactions that would create an 

overdraft. Problem institutions should 

refrain from incurring daylight 

overdrafts and must post collateral to 

cover any daylight overdrafts they do 

incur. 

F. Monitoring 

1. Ex Post 

Under the Federal Reserve’s ex post 

monitoring procedures, an institution 

with a daylight overdraft in excess of its 

maximum daylight overdraft capacity or 

net debit cap may be contacted by its 

Reserve Bank. The Reserve Bank may 

counsel the institution, discussing ways 

to reduce its excessive use of intraday 

credit. Each Reserve Bank retains the 

right to protect its risk exposure from 

69940 Federal Register / Vol. 69, No. 230 / Wednesday, December 1, 2004 / Notices 

67 Institutions that are monitored in real time 

must fund the total amount of their ACH credit 

originations in order for the transactions to be 

processed by the Federal Reserve, even if those 

transactions are processed one or two days before 

settlement.

68 12 U.S.C. 3101–3108.

69As in the case of Edge and agreement 

corporations and their branches, with the approval 

of the designated administrative Reserve Bank, a 

second Reserve Bank may assume the responsibility 

of managing and monitoring the net debit cap of 

particular foreign branch and agency families. This 

would often be the case when the payments activity 

and national administrative office of the foreign 

branch and agency family is located in one District, 

while the oversight responsibility under the 

International Banking Act is in another District. If 

a second Reserve Bank assumes management 

responsibility, monitoring data will be forwarded to 

the designated administrator for use in the 

supervisory process.

individual institutions by unilaterally 

reducing net debit caps, imposing 

collateralization or clearing-balance 

requirements, rejecting or delaying 

certain transactions as described below, 

or, in extreme cases, taking the 

institution off line or prohibiting it from 

using Fedwire. 

2. Real Time 

A Reserve Bank will, through the 

Account Balance Monitoring System, 

apply real-time monitoring to an 

individual institution’s position when 

the Reserve Bank believes that it faces 

excessive risk exposure, for example, 

from problem banks or institutions with 

chronic overdrafts in excess of what the 

Reserve Bank determines is prudent. In 

such a case, the Reserve Bank will 

control its risk exposure by monitoring 

the institution’s position in real-time, 

rejecting or delaying certain transactions 

that would exceed the institution’s 

maximum daylight overdraft capacity or 

net debit cap, and taking other 

prudential actions, including requiring 

collateral.67

3. Multi-District Institutions 

Institutions, such as those 

maintaining merger-transition accounts 

and U.S. branches and agencies of a 

foreign bank, that access Fedwire 

through accounts in more than one 

Federal Reserve District are expected to 

manage their accounts so that the total 

daylight overdraft position across all 

accounts does not exceed their net debit 

caps. One Reserve Bank will act as the 

administrative Reserve Bank and will 

have overall risk-management 

responsibilities for institutions 

maintaining accounts in more than one 

Federal Reserve District. For domestic 

institutions that have branches in 

multiple Federal Reserve Districts, the 

administrative Reserve Bank generally 

will be the Reserve Bank where the head 

office of the bank is located. 

In the case of families of U.S. 

branches and agencies of the same 

foreign banking organization, the 

administrative Reserve Bank generally is 

the Reserve Bank that exercises the 

Federal Reserve’s oversight 

responsibilities under the International 

Banking Act.68 The administrative 

Reserve Bank, in consultation with the 

management of the foreign bank’s U.S. 

operations and with Reserve Banks in 

whose territory other U.S. agencies or 

branches of the same foreign bank are 

located, may determine that these 

agencies and branches will not be 

permitted to incur overdrafts in Federal 

Reserve accounts. Alternatively, the 

administrative Reserve Bank, after 

similar consultation, may allocate all or 

part of the foreign family’s net debit cap 

to the Federal Reserve accounts of 

agencies or branches that are located 

outside of the administrative Reserve 

Bank’s District; in this case, the Reserve 

Bank in whose Districts those agencies 

or branches are located will be 

responsible for administering all or part 

of the collateral requirement.69

G. Transfer-Size Limit on Book-Entry 

Securities 

Secondary-market book-entry 

securities transfers on Fedwire are 

limited to a transfer size of $50 million 

par value. This limit is intended to 

encourage partial deliveries of large 

trades in order to reduce position 

building by dealers, a major cause of 

book-entry securities overdrafts before 

the introduction of the transfer-size 

limit and daylight overdraft fees. This 

limitation does not apply to either of the 

following: 

a. Original issue deliveries of bookentry securities from a Reserve Bank to 

an institution 

b. Transactions sent to or by a Reserve 

Bank in its capacity as fiscal agent of the 

United States, government agencies, or 

international organizations. 

Thus, requests to strip or reconstitute 

Treasury securities or to convert bearer 

or registered securities to or from bookentry form are exempt from this 

limitation. Also exempt are pledges of 

securities to a Reserve Bank as principal 

(for example, discount-window 

collateral) or as agent (for example, 

Treasury Tax and Loan collateral).

By order of the Board of Governors of the 

Federal Reserve System, November 24, 2004. 

Jennifer J. Johnson, 

Secretary of the Board.

[FR Doc. 04–26444 Filed 11–30–04; 8:45 am] 

BILLING CODE 6210–01–P

GENERAL SERVICES 

ADMINISTRATION

OMB Control No. 3090–0086

General Services Administration 

Acquisition Regulation; Information 

Collection; Proposal to Lease Space 

(Not Required By Regulation), GSA 

Form 1364

AGENCY: General Services 

Administration (GSA), GSA.

ACTION: Notice of request for comments 

regarding a renewal to an existing OMB 

clearance.

SUMMARY: Under the provisions of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. Chapter 35), the General Services 

Administration will be submitting to the 

Office of Management and Budget 

(OMB) a request to review and approve 

a renewal of a currently approved 

information collection requirement 

regarding proposal to lease space (not 

required by regulation), GSA Form 

1364.

Public comments are particularly 

invited on: Whether this collection of 

information is necessary and whether it 

will have practical utility; whether our 

estimate of the public burden of this 

collection of information is accurate, 

and based on valid assumptions and 

methodology; ways to enhance the 

quality, utility, and clarity of the 

information to be collected.

DATES: Submit comments on or before: 

January 31, 2005.

FOR FURTHER INFORMATION CONTACT: Julia 

Wise, Procurement Analyst, Contract 

Policy Division, at telephone (202) 208–

1168 or via e-mail to julia.wise@gsa.gov.

ADDRESSES: Submit comments regarding 

this burden estimate or any other aspect 

of this collection of information, 

including suggestions for reducing this 

burden to the Regulatory Secretariat 

(VIR), General Services Administration, 

Room 4035, 1800 F Street, NW., 

Washington, DC 20405. Please cite OMB 

Control No. 3090–0086, Proposal to 

Lease Space (Not Required By 

Regulation), GSA Form 1364, in all 

correspondence.

SUPPLEMENTARY INFORMATION:

A. Purpose

The General Services Administration 

(GSA) has various mission 

responsibilities related to the 

acquisition and provision of real 

property management, and disposal of 

real and personal property. These 

mission responsibilities generate 

requirements that are realized through 

the solicitation and award of leasing 

contracts. Individual solicitations and