Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices 30195

6These assessment procedures are described in

the Board’s policy statement entitled ‘‘The Federal

Reserve in the Payments System’’ (55 FR 11648,

March 29, 1990).

1 In the event an electronic check presentment is

delayed past 12:00 p.m. local time, the Reserve

Banks will post the transaction on the next clock

hour that is at least one hour after presentment

takes place but no later than 3:00 p.m. local time.

learned that many government

securities dealers and their clearing

banks support retaining the $50 million

limit. These representatives believe that

removing the limit could increase

position building and securities-related

overdrafts despite the existence of

daylight overdraft fees. In addition, the

representatives stated that removing the

limit would likely require costly system

changes throughout the industry. Given

that the industry bears a significant

portion of the costs and benefits of the

limit, both in terms of transaction fees

and reduced overdraft fees, the support

of the limit voiced by industry

representatives reflects their perception

that the limit has a positive net effect on

the government securities settlement

system.

Industry representatives indicated

that removal of the limit would likely

lead the industry to demand that

securities trades be settled in full and to

reject partial deliveries. While current

delivery guidelines encourage

acceptance of partial deliveries,

industry representatives expressed

concern that there would be no

technical mechanism to enforce these

guidelines. The Board believes the $50

million limit on book-entry securities

transfers in combination with daylight

overdraft fees has been effective in

reducing daylight overdrafts. Because

the limit appears to have a net positive

effect, the Board is disposed to retaining

the limit. The Board, however, would

like to ensure that it considers the

perspectives of all parties before making

a final determination regarding the

retention of this limit.

III. Request for Comment

The Board is proposing to maintain its

current policy limiting the size of

individual book-entry security transfers

on Fedwire to $50 million in par value.

The Board is requesting comment on all

aspects of the $50 million limit as well

as on the following questions:

1. Should the limit be retained?

If yes, is $50 million a reasonable

level for the limit? Do the benefits of the

limit support a reduction of the limit to

$25 million? Or, would a higher limit

reduce transaction costs but maintain

the existing benefits of the limit? Would

changing the limit require costly system

changes?

If no, what would be the effect of

eliminating the $50 million limit on

delivery fails, daylight overdrafts, and

dealer costs? In particular, would

eliminating the limit require costly

system changes?

2. Does the limit impose any

significant costs on dealers or clearing

banks, net of any benefits from reduced

overdrafts?

3. Does the limit promote specific

benefits in the government securities

market other than reduced overdrafts?

IV. Competitive Impact Analysis

Under its competitive equity policy,

the Board assesses the competitive

impact of changes that have a

substantial effect of payments system

participants.6 The Board believes that

retention of the $50 million securities

transfer limit will have no adverse effect

on the ability of other service providers

to compete effectively with the Federal

Reserve Banks in providing similar

transfer services.

V. 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 request for

comments under the authority delegated

to the Board by the Office of

Management and Budget. The collection

of information pursuant to the

Paperwork Reduction Act contained in

the policy statement will not unduly

burden depository institutions.

By order of the Board of Governors of the

Federal Reserve System, May 30, 2001.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 01–13981 Filed 6–4–01; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM

[Docket No. R–1109]

Policy Statement on Payments System

Risk; Modifications to Daylight

Overdraft Posting Rules for Electronic

Check Presentments

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Request for comment on policy.

SUMMARY: The Board is requesting

comment on a change to the procedures

for measuring daylight overdrafts in

depository institutions’ Federal Reserve

accounts. The Board proposes to modify

the procedures to allow debits

associated with electronic check

presentment (ECP) transactions to post

at 1:00 p.m. local time.1 The current

posting times for ECP transactions often

create a disincentive for depository

institutions to use Federal Reserve

electronic check presentment services,

and the Board proposes to remove

barriers that may discourage their use.

EFFECTIVE DATE: Comments must be

received by August 6, 2001.

ADDRESSES: Comments, which should

refer to Docket No. R–1109, may be

mailed to Ms. Jennifer J. Johnson,

Secretary, Board of Governors of the

Federal Reserve System, 20th and C

Streets, NW, Washington, DC 20551 or

mailed electronically to

regs.comments@federalreserve.gov.

Comments addressed to Ms. Johnson

also may be delivered to the Board’s

mailroom between 8:45 a.m. and 5:15

p.m. and to the security control room

outside of those hours. Both the

mailroom and the security control room

are accessible from the courtyard

entrance on 20th Street between

Constitution Avenue and C Street, NW.

Comments may be inspected in Room

MP–500 between 9:00 a.m. and 5:00

p.m. weekdays, pursuant to § 261.12,

except as provided in § 261.14, of the

Board’s Rules Regarding Availability of

Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: Paul

Bettge, Associate Director (202/452–

3174), Stacy Coleman, Manager (202/

452–2934), or Jeffrey Yeganeh, Senior

Financial Services Analyst (202/728–

5801), Division of Reserve Bank

Operations and Payment Systems.

SUPPLEMENTARY INFORMATION: This is

one of five notices regarding payments

system risk that the Board is issuing for

public comment today. Two near-term

proposals concern the net debit cap

calculation for U.S. branches and

agencies of foreign banks (Docket No. R–

1108) and the book-entry securities

transfer limit (Docket No. R–1110). In

addition, the Board is requesting

comment on the benefits and drawbacks

to several potential longer-term changes

to the Board’s payments system risk

(PSR) policy, including lowering selfassessed net debit caps, eliminating the

two-week average caps, implementing a

two-tiered pricing system for

collateralized and uncollateralized

daylight overdrafts, and rejecting

payments with settlement-day finality

that would cause an institution to

exceed its daylight overdraft capacity

level (Docket No. R–1111). The Board is

also issuing today an interim policy

statement and requesting comment on

the broader use of collateral for daylight

overdraft purposes (Docket No. R–1107).

Furthermore, to reduce burden

associated with the PSR policy, the

Board recently rescinded the

30196 Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices

2See ‘‘Federal Reserve Policy Statement on

Payments System Risk,’’ section I.A (57 FR 47093,

October 14, 1992).

3On the day a paying bank receives a cash item

from a Reserve Bank, it shall settle for the item so

that the proceeds of the settlement are available to

its Administrative Reserve Bank, or return the item,

by the latest of (1) the next clock hour that is at least

one hour after the paying bank receives the item;

(2) 9:30 a.m. Eastern Time; or (3) such later time

as provided in the Reserve Banks’ operating

circulars (12 CFR 210.9(b)).

4The Reserve Banks would modify the operating

circulars as necessary. 5The Reserve Banks usually deliver electronic

check presentment files by 12:00 p.m. ET in the

Pacific Time zone.

interaffiliate transfer (Docket No. R–

1106) and third-party access policies

(Docket No. R–1100).

The Board requests that in filing

comments on these proposals,

commenters prepare separate letters for

each proposal, identifying the

appropriate docket number on each.

This will facilitate the Board’s analysis

of all comments received.

I. Background

The Board’s PSR policy establishes

maximum limits (net debit caps) and

fees on daylight overdrafts in depository

institutions’ accounts at Federal Reserve

Banks. When the Board adopted

daylight overdraft fees, the Federal

Reserve Banks began measuring

depository institutions’ intraday

account balances according to a set of

‘‘posting rules’’ established by the

Board. These rules comprise a schedule

for the posting of debits and credits to

institutions’ Federal Reserve accounts

for different types of payments.2 The

Board’s objectives in designing the

posting rules include minimizing

intraday float, facilitating depository

institutions’ monitoring and control of

their cash 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.

The posting rules attempt to eliminate

aggregate Federal Reserve intraday float

because such float would be equivalent

to unpriced Federal Reserve daylight

credit.

As part of a broad review of its PSR

policies, the Board evaluated the

effectiveness of the current posting rules

and found these rules to be generally

effective and well understood by the

industry. In reviewing the posting rules,

however, the Board found that the

posting times for ECP transactions often

create a disincentive for depository

institutions to use Federal Reserve

electronic check services. The Federal

Reserve Banks deliver the majority of

electronic check presentments in the

morning, and the delivery of the ECP

files constitutes legal presentment of the

checks under the terms of the Federal

Reserve’s uniform Operating Circular 3.

In accordance with the Board’s

objectives in designing the posting

rules, the current posting rules stipulate

that debits to depository institutions’

Federal Reserve accounts for check

presentments occur on the next clock

hour that is at least one hour after

presentment takes place, beginning at

11:00 a.m. Eastern Time (ET) and no

later than 3:00 p.m. local time.3 Because

the Reserve Banks generally deliver

electronic check presentments in the

morning, the corresponding debits occur

at 11:00 a.m. ET. As a result, for many

depository institutions, the posting

times for electronic check presentments

are earlier than the posting times

associated with their paper check

presentments.

The often earlier debit posting times

associated with electronic check

presentments have caused some

depository institutions to incur daylight

overdrafts earlier in the day and, in

many cases, for longer periods of time.

Because the Reserve Banks charge

depository institutions a fee for the

amount and duration of their Federal

Reserve daylight credit use, the daylight

overdraft charges of some institutions

that have moved to electronic check

services have grown substantially. As a

result, some depository institutions

have asserted that the increases in their

daylight overdraft charges have reduced

or eliminated the benefits of using

Federal Reserve electronic check

services.

The Federal Reserve is interested in

removing barriers that may discourage

depository institutions from using

electronic check services. For several

years, the Federal Reserve has been

working on various initiatives to apply

electronic technologies to the check

collection process to gain efficiencies

and to reduce the associated costs and

risks. Electronic check services provide

operational efficiencies, improve

accuracy of information, reduce costs,

improve the likelihood of timely

presentment, and improve opportunities

for accessing and using cash

management information. The Board is

requesting comment on a proposed

change to the posting times for ECP

transactions to remove a barrier to the

use of ECP.

The Board also notes that its daylight

credit policies are primarily intended to

address intraday risk to the Federal

Reserve arising from daylight overdrafts.

Most transactions that lack settlementday finality, such as checks, however,

pose primarily interday, rather than

intraday, risk. Modifying the posting

times associated with ECP transactions

should not create significant, if any,

additional credit risk for the Reserve

Banks.

II. Posting Times for ECP Transactions

The Board proposes modifying the

daylight overdraft posting rules to allow

debits associated with ECP transactions

to post at 1:00 p.m. local time in order

to remove the disincentive created by

the current posting rules for depository

institutions to use Federal Reserve

electronic check presentment services.4

A 1:00 p.m. local time posting time

should remove the disincentive to move

to electronic check presentment services

created by the current posting rules. The

Reserve Banks generally deliver

electronic check presentment files by

10:00 a.m. ET; and, therefore, many

depository institutions currently receive

the related debits at 11:00 a.m. ET.5 For

many depository institutions, especially

those not located in the Eastern Time

zone, the 11:00 a.m. ET posting time is

substantially earlier than the posting

times associated with their paper check

presentments. A posting time of 1:00

p.m. local time should reduce or

eliminate the increase in daylight

overdraft charges potentially created by

the difference between the posting times

of ECP and paper check presentment

transactions.

The Board also considered posting

ECP debits at the time the paying bank’s

paper check presentments would have

been posted. The problem with

matching the posting times of ECP and

paper check presentments is that, over

time, as electronic check presentments

replace the physical delivery of the

paper checks for a larger proportion of

banks and courier routes are modified or

eliminated, there is no longer a

reasonable basis for determining

specific ECP posting times for each

depository institution. Moreover, a

single debit posting time in each time

zone for ECP transactions is more

straightforward than a debit posting

time that matches the posting time of

paper check presentments. In

determining a single debit posting time,

the Board considered the aggregate

value of checks posted to depository

institutions’ Federal Reserve accounts

by each hour of the day. Currently, the

Reserve Banks post the vast majority of

check transactions, on average

approximately 90 percent, by 1:00 p.m.

local time. Because the Reserve Banks

already post most checks by 1:00 p.m.

Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Notices 30197

6The Federal Reserve calculates the posting times

for check credits based on surveys of check

presentments in each time zone.

7 If the Board modifies the posting rules to permit

Reserve Banks to post debits for ECP transactions

at 1:00 p.m. local time, the Federal Reserve will

update the credit schedule concurrent with the

effective date of the policy change and, as needed,

thereafter. As a result, aggregate net intraday float

would continue to be close to zero because the

amounts of intraday credit and debit float created

for brief periods generally would offset one another.

8These procedures are described in the Board’s

policy statement ‘‘The Federal Reserve in the

Payments System,’’ as revised in March 1990. (55

FR 11648, March 29, 1990).

local time, the Board believes that

applying this posting time to ECP

transactions should minimize any

disincentive created by the posting rules

to move to electronic check presentment

services.

The primary drawback of posting ECP

debits later in the day is the associated

shift in posting credits to depository

institutions’ Federal Reserve accounts

for check deposits to later in the day.6

Institutions must choose one of two

check credit 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,

which may not necessarily fall on a

clock hour, for each type of cash letter.

The second option lets the institution

receive a portion of its available check

credits on the clock hours between

11:00 a.m. and 6:00 p.m. ET. The option

selected by an institution applies to all

of its check deposits, including those for

its respondents. Because the crediting

fractions and single float-weighted

posting times are based upon the

Reserve Banks’ ability to present checks

and obtain settlement from payor

institutions, posting times for check

credits would become concentrated

around 1:00 p.m. local time as more

depository institutions began using

Federal Reserve electronic check

services. Consequently, depository

institutions would receive their check

credits somewhat later than they do

today.7 In addition, changes to the

posting rules might entail some costs for

depository institutions that may have

developed internal monitors and

controls for the management of their

daily account balances around current

posting times; however, the Board

believes that such costs would be

minimal.

III. Request for Comment

The Board proposes changing the

posting times associated with ECP

transactions to 1:00 p.m. local time.

This revised posting time would allow

the Federal Reserve to remove the

barriers associated with the current

posting rules for ECP transactions while

providing a single and straightforward

posting time that should not adversely

affect depository institutions’ account

management procedures and practices

or Federal Reserve credit risk. The

Board requests comment on all aspects

of the proposed modification to the

posting rules. The Board is also

requesting specific comments on the

following questions:

1. Are there significant benefits or

drawbacks associated with a posting

time of 1:00 p.m. local time not

identified in this notice?

2. Does the proposed posting time

provide Federal Reserve Banks an

inappropriate competitive advantage

relative to the ability of private-sector

banks or other service providers to

compete in the provision of check

collection services? If so, how?

IV. Competitive Impact Analysis

The Board has established procedures

for assessing the competitive impact of

rule or policy changes that have a

substantial effect on payments system

participants.8 Under these procedures,

the Board assesses 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

expected benefits are significant enough

to proceed with the change despite the

adverse effects.

To obtain settlement from paying

banks for checks presented, the Reserve

Banks debit directly the account of the

paying bank or its designated

correspondent (12 CFR 210.9(b)(5)). In

contrast, a paying bank settles for

checks presented by a private-sector

bank for same-day settlement by

sending a Fedwire funds transfer to the

presenting bank or by another agreedupon method (12 CFR 229.36(f)(2)). In

addition, the Reserve Banks have the

right to debit the account of the paying

bank for settlement of checks on the

next clock hour that is at least one hour

after presentment (12 CFR 210.9(b)(2))

whereas a paying bank becomes

accountable to a private-sector

collecting bank if it does not settle for

the check by the close of Fedwire on the

day of presentment (12 CFR

229.36(f)(2)). In March 1998, the Board

requested comment on whether these

legal differences between the Reserve

Banks and the private sector provided

the Reserve Banks with a competitive

advantage and, if so, whether these legal

differences should be reduced or

eliminated (63 FR 12700, March 16,

1998). Based on an analysis of the

comments received, the Board

concluded that these legal disparities do

not materially affect the efficiency of or

competition in the check collection

system (63 FR 68701, December 14,

1998). The proposed posting rule

change for ECP transactions decreases,

rather than exacerbates, the legal

disparities between the Reserve Banks

and the private sector. The Board,

therefore, believes that the proposed

change would not have a direct or

material adverse effect on the ability of

other service providers to compete

effectively with the Reserve Banks’

payments services.

V. 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.

VI. Policy Statement on Payments

System Risk

The Board proposes to amend section

I.A. under the heading ‘‘Modified

Procedures for Measuring Daylight

Overdrafts’’ as follows with changes

identified by italics:

* * * * *

Modified Procedures for Measuring

Daylight Overdrafts 3

Opening Balance (Previous Day’s

Closing Balance)

Post at 1:00 p.m. Local Time:

—Electronic check presentments

3The posting changes do 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).

By order of the Board of Governors of the

Federal Reserve System, May 30, 2001.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 01–13980 Filed 6–4–01; 8:45 am]

BILLING CODE 6210–01–P