6292 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

1Copies of the Minutes of the Federal Open 

Market Committee meeting on December 9, 2003, 

which includes the domestic policy directive issued 

at the meeting, are available upon request to the 

Board of Governors of the Federal Reserve System, 

Washington, DC 20551. The minutes are published 

in the Federal Reserve Bulletin and in the Board’s 

annual report.

1Fedwire is a registered servicemark of the 

Federal Reserve Banks.

2The Reserve Banks have the ability to monitor 

an entity’s account for certain payment types in real 

time and reject those payments that would create, 

or increase, a daylight overdraft in the entity’s 

account. These payment types include Fedwire 

funds transfers, National Settlement Service 

transactions, and certain automated clearing house 

transactions.

indicated or the offices of the Board of 

Governors not later than March 5, 2004.

A. Federal Reserve Bank of Dallas

(W. Arthur Tribble, Vice President) 2200 

North Pearl Street, Dallas, Texas 75201–

2272:

1. Tradition Bancshares, Inc., 

Houston, Texas; to acquire up to 100 

percent of the voting shares of Katy 

Bank, N.A., Katy, Texas.

Board of Governors of the Federal Reserve 

System, February 4, 2004.

Robert deV. Frierson,

Deputy Secretary of the Board.

[FR Doc. 04–2772 Filed 2–9–04; 8:45 am]

BILLING CODE 6210–01–S

FEDERAL RESERVE SYSTEM

Federal Open Market Committee; 

Domestic Policy Directive of December 

9, 2003

In accordance with § 271.25 of its 

rules regarding availability of 

information (12 CFR part 271), there is 

set forth below the domestic policy 

directive issued by the Federal Open 

Market Committee at its meeting held 

on December 9, 2003.1

The Federal Open Market Committee 

seeks monetary and financial conditions 

that will foster price stability and 

promote sustainable growth in output. 

To further its long–run objectives, the 

Committee in the immediate future 

seeks conditions in reserve markets 

consistent with maintaining the federal 

funds rate at an average of around 1 

percent.

By order of the Federal Open Market 

Committee, February 3, 2004.

Vincent R. Reinhart,

Secretary, Federal Open Market Committee.

[FR Doc. E4–239 Field 2–9–04; 8:45 am]

BILLING CODE 6210–01–S

FEDERAL RESERVE SYSTEM

[Docket No. OP–1182] 

Policy Statement on Payments System 

Risk

AGENCY: Board of Governors of the 

Federal Reserve System.

ACTION: Notice and request for comment.

SUMMARY: The Board is giving notice 

that it intends to adopt two changes to 

its Policy Statement on Payments 

System Risk (PSR policy). First, the 

Board intends to modify the daylight 

overdraft measurement rules (‘‘posting 

rules’’) for interest and redemption 

payments on securities issued by 

entities for which the Reserve Banks act 

as fiscal agents but whose securities are 

not obligations of, or guaranteed by, the 

United States—that is, securities issued 

by government-sponsored enterprises 

(GSEs) and certain international 

organizations. The planned 

modification would revise the Board’s 

PSR policy to specify that the Reserve 

Banks will release interest and 

redemption payments on the Fedwire-

eligible securities issued by a GSE or 

international organization only when 

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.1 The 

Board requests comment on how best to 

implement this policy change in order 

to promote a smooth market adjustment.

Second, the Board intends to align the 

PSR policy’s treatment of the general 

corporate account activity (activity other 

than interest and redemption payments) 

of GSEs and certain international 

organizations with the treatment of 

account activity of other account 

holders that do not have regular access 

to the Federal Reserve’s discount 

window. Such treatment includes 

strongly discouraging daylight 

overdrafts and applying a penalty fee to 

daylight overdrafts that nonetheless 

result from these entities’ general 

corporate payment activity.

DATES: Comments must be received by 

April 16, 2004.

ADDRESSES: Comments should refer to 

Docket No. OP–1182 and may be mailed 

to Jennifer J. Johnson, Secretary, Board 

of Governors of the Federal Reserve 

System, 20th Street and Constitution 

Avenue, NW., Washington, DC 20551. 

Please consider submitting your 

comments through the Board’s Web site 

at www.federalreserve.gov/generalinfo/

foia/ProposedRegs.cfm, by e-mail to 

regs.comments@federalreserve.gov, or 

by fax to the Office of the Secretary at 

202/452–3819 or 202/452–3102. Rules 

proposed by the Board and other federal 

agencies may also be viewed and 

commented on at www.regulations.gov. 

All public comments are available 

from the Board’s Web site at 

www.federalreserve.gov/generalinfo/

foia/ProposedRegs.cfm as submitted, 

except as necessary for technical 

reasons. Accordingly, your comments 

will not be edited to remove any 

identifying or contact information. 

Public comments may also be viewed 

electronically or in paper in Room MP–

500 of the Board’s Martin Building (20th 

and C Streets, NW.) between 9 a.m. and 

5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Paul 

Bettge, Associate Director (202/452–

3174), Stacy Coleman, Manager (202/

452–2934), or Connie Horsley, Senior 

Financial Services Analyst (202/452–

5239), Division of Reserve Bank 

Operations and Payment Systems; for 

the hearing impaired only: 

Telecommunications Device for the 

Deaf, Dorothea Thompson (202/452–

3544).

SUPPLEMENTARY INFORMATION:

I. Background

A. Foundation of the PSR Policy 

In 1985, the Board adopted a policy 

to reduce the risks that payment systems 

present to the Federal Reserve Banks, to 

the banking system, and to other sectors 

of the economy (50 FR 21120, May 22, 

1985). An integral component of this 

PSR policy is managing the Federal 

Reserve’s direct credit risk by 

controlling institutions’ use of Federal 

Reserve intraday credit, commonly 

referred to as ‘‘daylight credit’’ or 

‘‘daylight overdrafts.’’ A daylight 

overdraft occurs when an account 

holder’s Federal Reserve account is in a 

negative position during the business 

day. The PSR policy requires all 

depository institutions incurring 

daylight overdrafts in their Federal 

Reserve accounts to establish a 

maximum limit, or net debit cap, on 

those overdrafts. In addition, a Reserve 

Bank may apply other risk controls to an 

account holder’s payment activity if the 

account holder incurs daylight 

overdrafts in violation of the PSR policy 

or if the Reserve Bank believes that the 

account holder poses credit risk in 

excess of what the Reserve Bank 

determines to be prudent. Under these 

circumstances, a Reserve Bank may 

place real-time controls on the account 

holder’s payment activity, so as to reject 

requested payments, or require the 

account holder to pledge collateral to 

cover its daylight overdrafts as a means 

of deterring further the use of Federal 

Reserve daylight credit.2

Under the PSR policy, an institution’s 

eligibility to access daylight credit is 

Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 6293

3Before the passage of the Monetary Control Act 

of 1980, only banks that were members of the 

Federal Reserve System enjoyed regular access to 

the discount window. The Monetary Control Act 

extended reserve requirements to nonmember 

institutions and provided that any institution 

holding deposits subject to reserve requirements 

(transaction accounts and nonpersonal time 

deposits) would have the same access to the 

discount window as member institutions (12 U.S.C. 

461(b)(7)).

4Section 13(3) of the Federal Reserve Act 

empowers the Board, by the affirmative vote of not 

less than five members (or, in certain cases, all 

available members), to authorize any Federal 

Reserve Bank to lend to individuals, partnerships, 

and corporations under ‘‘unusual and exigent 

circumstances’’ (12 U.S.C. 343 and 248(r)). Section 

13(13) allows any Federal Reserve Bank to lend to 

any individual, partnership, or corporation when 

secured by U.S. government securities, subject to 

such limitations, restrictions, and regulations as the 

Board may prescribe (12 U.S.C. 347c). The Board’s 

Regulation A applies the ‘‘unusual and exigent 

circumstances’’ requirement to discount window 

loans to any entity without regular discount 

window access, regardless of the type of collateral 

pledged. Regulation A also requires the Federal 

Reserve Banks to consult with the Board before 

lending to those entities. Lending under these 

provisions has been extremely rare, and such loans 

have not been extended since the 1930s.

5Prior to the 1992 posting rule modification, 

Fedwire funds and securities transfers were posted 

to institutions’ Federal Reserve accounts as they 

were processed during the business day (as they 

still are today). The net of all automated clearing 

house transactions was posted as if the transactions 

occurred at the opening of business, regardless of 

whether the net was a debit or credit balance. All 

other, or ‘‘non-wire,’’ activity was netted for a 

business day, and if the net balance was a credit, 

the credit amount was added to the opening 

balance. If the net balance was a debit, the debit 

amount was deducted from the closing balance. 

Under this method, an institution could use all of 

its non-wire net credits to offset any Fedwire funds 

or securities debits during the day but postpone the 

need to cover non-wire net debits until the close of 

the day.

6 In their role as fiscal agents, the Reserve Banks 

maintain securities issued by GSEs and 

international organizations on the Fedwire 

Securities Service and make interest and 

redemption payments to depository institutions on 

each issuer’s behalf, in addition to providing other 

payment services generally related to these fiscal 

agency services.

7These entities include the following GSEs: the 

Federal National Mortgage Association (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), and the Student Loan Marketing Association 

(Sallie Mae). They also include the following 

international organizations: the International Bank 

for Reconstruction and Development (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, Sallie Mae will no longer 

be considered a GSE, and the Reserve Banks will 

no longer add new issuances of Sallie Mae 

securities to the Fedwire Securities Service.

8The term ‘‘interest and redemption payments’’

refers to payments of principal and interest on 

securities maintained on the Fedwire Securities 

Service.

contingent upon whether the institution 

is eligible for regular access to the 

Federal Reserve’s discount window and 

whether it is in sound financial 

condition. By statute, regular access to 

the discount window generally is 

available to institutions that are subject 

to reserve requirements.3 If such an 

institution fails to cover a daylight 

overdraft by the close of the business 

day, it either obtains a discount window 

loan or incurs an overnight overdraft. 

The Federal Reserve strongly 

discourages institutions from incurring 

overnight overdrafts by charging a 

penalty rate, equal to the federal funds 

rate plus four percentage points, on the 

amount of the overnight overdraft.

The Federal Reserve has long been 

concerned that an institution that does 

not have regular access to the discount 

window may nevertheless incur a 

daylight overdraft, which could, in turn, 

become an overnight overdraft. To 

address the risks arising from such 

overdrafts and to avoid the extension of 

overnight credit to institutions that lack 

regular access to the discount window, 

the PSR policy does not permit such 

institutions to adopt a positive net debit 

cap and strongly discourages them from 

incurring any daylight overdrafts. The 

Board’s policy is consistent with 

Congress’s intent in the Federal Reserve 

Act to allow depository institutions 

access to Federal Reserve overnight 

credit as a quid pro quo for being 

subject to reserve requirements and to 

impose additional conditions on the 

Federal Reserve’s provision of overnight 

credit to other entities.4

B. Introduction of Daylight Overdraft 

Fees

Since the PSR policy was first 

adopted in 1985, the Board has 

modified and expanded it several times. 

Notably, in 1992, the Board approved a 

policy to charge institutions a fee for 

their use of Federal Reserve daylight 

credit, beginning in April 1994 (57 FR 

47084, October 14, 1992). The Board’s 

goal in adopting this policy was to 

induce behavior that would reduce risk 

and increase efficiency in the payment 

system. At that time, the Board also 

modified how it posted different types 

of transactions to institutions’ Federal 

Reserve accounts to reflect more closely 

the time that transactions were 

processed (57 FR 47093, October 14, 

1992).5 The Board’s objectives in 

designing these posting rules included 

minimizing intraday float, facilitating 

depository institutions’ monitoring and 

control of their account balances during 

the day, and reflecting the legal rights 

and obligations of parties to payments. 

The Board’s objective of minimizing 

intraday float is especially important in 

light of the daylight overdraft fee, which 

gives intraday credit an explicit value.

After the Board approved its policy of 

charging fees for daylight overdrafts and 

its revised posting rules, it adopted a 

penalty fee (the regular daylight 

overdraft fee, currently 36 basis points, 

plus 100 basis points) for daylight 

overdrafts incurred by certain 

institutions that, by statute, do not have 

regular discount window access (59 FR 

8977, February 24, 1994). Because of 

concerns that a daylight overdraft could 

become an overnight overdraft, the 

Board determined that such account 

holders should not be permitted the 

same access to intraday credit as 

depository institutions and should be 

prohibited from incurring daylight 

overdrafts. Recognizing, however, that 

these account holders may, nonetheless, 

incur daylight overdrafts, the Board 

believed a penalty fee should be applied 

to these account holders’ daylight 

overdrafts to provide such account 

holders a strong incentive to avoid 

incurring any, including inadvertent, 

daylight overdrafts. The Board’s policy 

explicitly addressed the account holders 

that would be subject to the penalty fee, 

which included Edge and agreement 

corporations, limited purpose trust 

companies, and bankers’ banks that do 

not waive their exemption from reserve 

requirements. At the time, however, the 

Board did not explicitly address 

whether certain aspects of the policy 

would be applied to GSEs and 

international organizations for which 

the Reserve Banks act as fiscal agents.6, 7

In 1994, the Board issued an 

interpretation of the PSR policy that 

stated GSEs should not incur daylight 

overdrafts in their accounts and would 

not be allowed to adopt positive net 

debit caps because they do not have 

regular access to the discount window 

(59 FR 25060, May 13, 1994). In its 

interpretation, the Board granted a 

temporary exemption from fees on 

daylight overdrafts resulting from the 

Reserve Banks’ release of interest and 

redemption payments on Fedwireeligible securities issued by GSEs prior 

to the issuers’ full funding of such 

payments.8 The Board granted this 

temporary exemption because it was 

uncertain of the effect that daylight 

overdraft fees would have on securities 

markets and did not want to introduce 

too much change at one time. The Board 

indicated that it would revisit the 

temporary exemption after market 

participants adjusted to the effects of 

daylight overdraft fees. In addition, the 

Board applied the regular daylight 

overdraft fee to the daylight overdrafts 

6294 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

9To facilitate measurement of overdrafts arising 

from the different activity, the Board required the 

GSEs and Reserve Banks to establish separate GSE 

accounts for principal and interest activity (P&I 

account) and for general corporate payment activity 

(general account).

10Through its analysis, the Board identified 

growing liquidity pressures among certain 

payments system participants and, as a result, 

revised the policy to modify the net debit cap 

calculation for U.S. branches and agencies of 

foreign banks, to modify the time electronic check 

presentments are posted to depository institutions’

Federal Reserve accounts for purposes of measuring 

daylight overdrafts, and to allow certain depository 

institutions to pledge collateral to the Federal 

Reserve in order to access additional daylight 

overdraft capacity above their net debit caps, 

subject to Reserve Bank approval. These changes to 

the policy were intended to benefit the few 

financially healthy institutions that had been 

constrained by their net debit caps by increasing 

their daylight overdraft capacity and to remove a 

potential impediment to the use of electronic check 

presentment.

11Fedwire Funds messages other than settlement 

payment orders may be sent until 6 p.m. ET 

(settlement payment orders may be sent until 6:30 

p.m. ET). Under the Reserve Banks’ Operating 

Circular 6, a settlement payment order is a payment 

order in which the originator and the beneficiary 

are each either (i) a bank subject to reserve 

requirements (whether or not it actually maintains 

reserves), or (ii) a participant in a net settlement 

arrangement approved by a Reserve Bank as an 

eligible originator or beneficiary of a settlement 

payment order sent during the settlement period.

12While transactions for various payment types 

are processed throughout the business day, daylight 

overdrafts in an entity’s Federal Reserve account are 

calculated on an ex post basis according to the 

daylight overdraft posting rules.

13Participants on the Fedwire Securities Service 

can reposition securities held in their own accounts 

against payment until 4:30 p.m. ET (repositioning 

securities without payment is permitted until 7 

p.m. ET). Because interest and redemption 

payments on Fedwire-eligible securities are 

processed through the Fedwire Securities Service as 

funds-only transactions, they cannot be processed 

after 4:30 p.m. ET. A cut-off hour of 4 p.m. ET for 

issuers to fund these interest and redemption 

payments would provide the Reserve Banks a 30-

minute window in which to complete the requisite 

processing for funds-related transactions in order to 

close the Fedwire Securities Service on time.

14The 4 p.m. ET cut-off hour would apply 

specifically to the interest and redemption on 

Fedwire-eligible securities issued by GSEs and 

international organizations and would be 

independent of any other established operating 

hours of the Fedwire Securities Service as 

published in the Reserve Banks’ Operating Circular 

7.

arising from the GSEs’ general corporate 

funding activity, but did not apply the 

penalty fee that applies to other 

institutions that lack regular discount 

window access.9 The Board stated it 

was not, however, ruling out the future 

application of the penalty fee.

In March 1995, the Board decided to 

raise the rate charged on daylight 

overdrafts to 36 basis points (60 FR 

12559, March 7, 1995). At the time, the 

Board stated that it would evaluate 

further fee increases in a few years. 

When the Board began its evaluation of 

the effectiveness of the daylight 

overdraft fee in 2000, it recognized that 

significant changes had occurred in the 

banking, payments, and regulatory 

environment since the fee was 

introduced and, as a result, decided to 

broaden its review to include all aspects 

of the Federal Reserve’s daylight credit 

policies. Based on its review, the Board 

determined that the PSR policy appears 

to be generally effective in controlling 

risk to the Federal Reserve and creating 

incentives for depository institutions to 

manage their intraday credit exposures 

(66 FR 64419, December 13, 2001).10

During its review, the Board also 

determined that market participants 

appear to have adjusted to daylight 

overdraft fees, which prompted an 

assessment of the temporary exemption 

granted to GSEs under the Board’s 1994 

interpretation of the PSR policy. In 

conducting this assessment, the Board 

evaluated the treatment of interest and 

redemption payments on Fedwireeligible securities issued by GSEs and 

certain international organizations as 

well as the treatment of other payment 

services these entities use for their 

general corporate payment activity. As a 

result of this evaluation, the Board plans 

to implement two modifications to its 

PSR policy as described below. 

II. Discussion of Planned Policy 

Changes 

A. Modification of Posting Rules for 

Interest and Redemption Payments 

In the course of the Board’s 

assessment of its 1994 interpretation of 

the PSR policy, the Board found that the 

dollar volume of interest and 

redemption payments on Fedwireeligible securities issued by GSEs and 

international organizations that are 

credited to the receiving depository 

institutions’ Federal Reserve accounts 

prior to such payments being fully 

funded by the issuer has grown 

significantly over the past ten years. In 

large part this increase owes to the rapid 

growth in Fedwire-eligible securities 

issued by GSEs. In addition, for some 

issuers, the lag between the time the 

Reserve Banks credit depository 

institutions’ accounts for the interest 

and redemption payments and the time 

the issuer covers the payments extends, 

at times, until shortly before the close of 

the Fedwire Funds Service.11

The Board’s current daylight overdraft 

measurement rules specify that U.S. 

Treasury and government agency 

interest and redemption payments are 

posted, that is, debited from the issuers’

accounts and credited to the receivers’

accounts, by 9:15 a.m. Eastern Time 

(ET) and that original issues of 

securities are posted on a flow basis, as 

they are issued, but no earlier than 9:15 

a.m. ET.12 These posting rules were 

designed primarily to grant depository 

institutions the benefit of receiving 

interest and redemption payments on 

U.S. Treasury or government agency 

securities prior to debits being made to 

their accounts for the purchase of new 

issues.

For operational ease, the Reserve 

Banks have applied the same posting 

rules to interest and redemption 

payments on Fedwire-eligible securities 

issued by GSEs and international 

organizations. However, the practice of 

releasing such payments before they are 

fully funded by the issuer is neither 

necessary to achieve the Federal 

Reserve’s statutory mission nor 

appropriate risk management policy for 

the central bank. Furthermore, this 

practice is inconsistent with that of 

private issuing and paying agents for 

their customers’ securities. In general, 

these issuing and paying agents do not 

allow payments to be made for a 

securities issuer before the issuer has 

fully funded its payments. The Board, 

therefore, intends to revise its policy to 

specify that the Reserve Banks will 

release interest and redemption 

payments on Fedwire-eligible securities 

issued by a GSE or an international 

organization only when the issuer’s 

Federal Reserve account contains funds 

equal to or in excess of the amount of 

the issuer’s interest and redemption 

payments to be made. 

Under the revised policy, a cut-off 

hour by which the issuers must fund 

their respective interest and redemption 

payments would be established on the 

Fedwire Securities Service in order to 

avoid disruptions to end-of-day 

processing for this and related systems. 

The latest this cut-off hour could be is 

4 p.m. ET in order to allow the Reserve 

Banks to close other elements of the 

Fedwire Securities and Funds Services 

on time.13 14 In the event that an issuer 

did not fund its interest and redemption 

payments by the established cut-off 

hour, its payments would not be 

processed on that day. Requests by an 

issuer for extensions of the 4 p.m. ET 

funding deadline would not be granted.

The planned posting rule 

modification is intended to address the 

intraday credit that results from the 

current manner in which the Reserve 

Banks process and post interest and 

redemption payments on securities 

issued by GSEs and international 

organizations to the receiving 

depository institutions’ Federal Reserve 

accounts prior to such payments being 

fully funded by the issuer. The Board 

recognizes that the removal of Federal 

Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 6295

15Under any phased approach, each issuer would 

be required to fund the amount of its interest and 

redemption payments to be made on a given day 

by the close of business, as is the case today. 

Regardless of the approach the Board ultimately 

adopts, at full implementation, each issuer would 

be required to fund the amount of its interest and 

redemption payments to be made on a given day 

by the established cut-off hour before the Reserve 

Bank would release the issuer’s interest and 

redemption payments.

2This 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).

3The 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 guaranteed by, the United States. 

These entities include the following GSEs: the 

Federal National Mortgage Association (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), and the Student Loan Marketing Association 

(Sallie Mae). These entities also include the 

following international organizations: the 

International Bank for Reconstruction and 

Development (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, Sallie Mae will no longer be 

considered a GSE, and the Reserve Banks will no 

longer add new issuances of Sallie Mae securities 

to the Fedwire Securities Services.

4The 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. If a Reserve 

Banks 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. ET, the 

issuer’s payments will not be processed on that day.

5For 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 guaranteed 

by, the United States.

6Original issues of government agency GSE, or 

international organization securities are delivered 

as book-entry securities transfers and will be posted 

when the securities are delivered to the purchasing 

institutions.

Reserve intraday credit that is currently 

extended between the time the Reserve 

Banks disburse interest and redemption 

payments and the time the Reserve 

Banks receive funding for such 

payments may require alternate sources 

of private funding. This is similar to the 

hour-by-hour funding that depository 

institutions arrange in the ordinary 

course of business for other types of 

transactions. When depository 

institutions have difficulty with 

intraday funding sources, they may be 

required to obtain alternative financing 

in the money and capital markets to 

facilitate their intraday operations. The 

Board is confident that payment 

practices and markets will adjust to the 

planned policy changes, and, in an 

effort to promote a smooth market 

adjustment and minimize market 

participants’ adjustment costs, the 

Board requests comment on whether to 

implement the policy change through 

full implementation on a specified date 

or through a phased approach. 

If implementing the planned policy 

change without a phase-in period would 

better promote a smooth market 

adjustment, the Reserve Banks would, 

beginning in July 2006, release interest 

and redemption payments on Fedwireeligible securities issued by a GSE or an 

international organization only when 

the issuer’s Federal Reserve account 

contains funds equal to or in excess of 

the amount of the issuer’s interest and 

redemption payments to be made. 

Alternatively, if market participants 

believe that a phased approach would 

better facilitate implementation of the 

planned change, the Board requests 

comment on the specific structure and 

objectives of any suggested phased 

approach and the rationale for why such 

an approach is considered preferable to 

one of full implementation in terms of 

promoting a smooth market 

adjustment.15

B. Uniform Policy Treatment of Account 

Holders That Lack Regular Access to the 

Discount Window

As part of the Board’s assessment of 

its 1994 interpretation of the PSR 

policy, the Board also evaluated the 

treatment of other payment services 

used by GSEs and international 

organizations for their general corporate 

payment activity, that is, payment 

activity unrelated to interest and 

redemption payments. While most of 

these entities only infrequently incur 

daylight overdrafts as a result of their 

general corporate payment activity, a 

few of these entities incur such daylight 

overdrafts on an almost daily basis. 

The Board has determined that GSEs 

and international organizations for 

which the Reserve Banks act as fiscal 

agents should not be permitted the same 

access to intraday credit as depository 

institutions because, by statute, they do 

not have regular access to the discount 

window. Therefore, to provide uniform 

treatment of account holders that do not 

have regular access to the discount 

window, the Board intends to apply the 

penalty fee to daylight overdrafts that 

result from GSEs’ and international 

organizations’ general corporate 

payment activity. The Board plans to 

implement the penalty fee concurrent 

with the posting rule change for interest 

and redemption payments, either upon 

full implementation of that policy 

change or at the start of a phased 

implementation. This planned policy 

change would supersede the Board’s 

1994 temporary exemption pertaining to 

government-sponsored enterprises. As a 

result, the Board would rescind its 1994 

interpretation upon implementation of 

the planned policy change. 

III. Paperwork Reduction Act 

In accordance with the Paperwork 

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

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

Board has reviewed the policy statement 

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 policy 

statement. 

IV. Federal Reserve Policy Statement 

on Payments System Risk 

The Board plans to amend the 

‘‘Federal Reserve Policy Statement on 

Payments System Risk.’’ Section I.A., 

under the heading ‘‘Daylight overdraft 

definition and measurement’’ would be 

amended as follows with changes 

identified in italics:

Procedures for Measuring Daylight 

Overdrafts 2

Opening Balance (Previous Day’s 

Closing Balance) 

Post Throughout Business Day:

± Fedwire funds transfers 

± Fedwire book-entry securities 

transfers 

+ Fedwire book-entry interest and 

redemption payments on securities 

that are not obligations of, or 

guaranteed by, the United States 3 4

± Net settlement entries. 

Post by 9:15 a.m. Eastern Time:

+ U.S. Treasury and government agency 

book-entry interest and redemption 

payments 5

Post Beginning at 9:15 a.m. Eastern 

Time:

¥ Original issues of Treasury 

securities.6

Section I.E. under the heading 

‘‘Special situations,’’ would be amended 

as follows with changes identified in 

italics:

E. Special Situations 

Under the Board’s policy, certain 

account holders 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. Account 

holders that do not have regular access 

6296 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

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 international 

organizations. Depository 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 account 

holders, 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 account 

holders.

Regular access to the Federal Reserve 

discount window generally is available 

to institutions that are subject to reserve 

requirements. If an account holder 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 account holder 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 discountwindow access as reflected in the 

Federal Reserve Act and in Board 

regulations. Thus, account holders that 

do not have regular access to the 

discount window should not incur 

daylight overdrafts in their Federal 

Reserve accounts. 

Certain account holders are subject to 

a daylight-overdraft penalty fee levied 

against the average daily daylight 

overdraft incurred by the account 

holder. These include Edge and 

agreement corporations, bankers’ banks 

that are not subject to reserve 

requirements, limited-purpose trust 

companies, GSEs, and international 

organizations. The annual rate used to 

determine the daylight-overdraft penalty 

fee is equal to the annual rate applicable 

to the daylight overdrafts of other 

depository 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 18/24). The daily daylight 

overdraft penalty rate is calculated by 

dividing the annual penalty rate by 360.

The daylight-overdraft penalty rate 

applies to the account holder’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 depository 

institutions described in section I.B. 

While daylight overdraft fees are 

calculated differently for these account 

holders than for depository institutions, 

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 depository 

institutions that have regular access to 

the discount window.

A new heading ‘‘Governmentsponsored enterprises and international 

organizations’’ and text would be added 

to read as follows in Section I.E.4.: 

4. Government-sponsored enterprises 

and international organizations

The Reserve Banks act as fiscal agents 

for certain GSEs and international 

organizations in accordance with 

federal statutes. These entities generally 

have Federal Reserve accounts and 

issue securities over the Fedwire 

Securities Service. The securities of 

these account holders are not 

obligations of, or guaranteed by, the 

United States. Furthermore, these 

account holders are not subject to 

reserve requirements, do not have 

regular discount-window access, and 

should refrain from incurring daylight 

overdrafts and post collateral to cover 

any daylight overdrafts they do incur. 

GSEs and international organizations 

are subject to the same daylightoverdraft penalty rate as other entities 

that do not maintain reserves and do 

not have regular discount-window 

access.

Section I.E.4., under the heading 

‘‘Problem institutions,’’ would be 

renumbered as ‘‘I.E.5.’’

By order of the Board of Governors of the 

Federal Reserve System, February 4, 2004. 

Jennifer J. Johnson, 

Secretary of the Board.

[FR Doc. 04–2797 Filed 2–9–04; 8:45 am] 

BILLING CODE 6210–01–P

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Disease Control and 

Prevention 

[Program Announcement 04078] 

Providing Technical Assistance 

Support for the Rapid Strengthening of 

Blood Transfusion Services in 

Selected Countries in Africa and the 

Caribbean Under the President’s 

Emergency Plan for AIDS Relief; 

Amendment 

A notice announcing the availability 

of fiscal year (FY) 2004 funds for 

cooperative agreements for Providing 

Technical Assistance Support for the 

Rapid Strengthening of Blood 

Transfusion Services in Selected 

Countries in Africa and the Caribbean 

Under the President’s Emergency Plan 

for AIDS Relief was published in the 

Federal Register on December 1, 2003, 

volume 68, number 230, pages 67181–

67186. The notice is amended as 

follows: 

On page 67183, in the first column 

under ‘‘III.1. Eligible applicants,’’ please 

include a fifth bullet allowing ‘‘For 

profit organizations’’ to apply. 

On page 67185, in the first column 

under ‘‘IV.5. Funding restrictions,’’

please incorporate the following as an 

additional restriction:

In accordance with CFR 45 74.81, no HHS 

funds may be paid as profit to any recipient 

even if the recipient is a commercial 

organization. Profit is any amount in excess 

of allowable direct and indirect costs.

Dated: February 4, 2004. 

Sandra R. Manning, 

Director, Procurement and Grants Office, 

Centers for Disease Control and Prevention.

[FR Doc. 04–2778 Filed 2–9–04; 8:45 am] 

BILLING CODE 4163–18–P

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES

Food and Drug Administration

[FDA 225–03–8002]

Memorandum of Understanding 

Between the Food and Drug 

Administration and Virginia 

Polytechnic Institute and State 

University

AGENCY: Food and Drug Administration, 

HHS.

ACTION: Notice.

SUMMARY: The Food and Drug 

Administration (FDA) is providing 

notice of a memorandum of 

understanding (MOU) between FDA and 

the Virginia Polytechnic Institute and 

State University to establish terms of 

collaboration to support shared interests 

that can proceed through a variety of 

programs, such as sabbaticals, 

postdoctoral fellowships, and student 

internships.

DATES: The agreement became effective 

March 13, 2003.

FOR FURTHER INFORMATION CONTACT:

Peter Pitts, Office of External Relations 

(HF–10), Food and Drug 

Administration, 5600 Fishers Lane, 

Rockville, MD 20857, 301–827–3330.

SUPPLEMENTARY INFORMATION: In 

accordance with 21 CFR 20.108(c), 

which states that all written agreements