[Federal Register Volume 60, Number 44 (Tuesday, March 7, 1995)]
[Notices]
[Pages 12559-12563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5530]



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FEDERAL RESERVE SYSTEM

[Docket No. R-0806]


Policy Statement on Payments System Risk; Daylight Overdraft 
Pricing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Policy statement.

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SUMMARY: The Board has approved a modification of the increase in the 
fee charged to depository institutions for daylight overdrafts incurred 
in their accounts at the Reserve Banks that had been scheduled to take 
effect on April 13, 1995. As a result of the sizeable reductions in 
daylight overdrafts already achieved, as well as concerns about the 
possible effects of further rapid fee increases, the Board has approved 
an increase in the daylight overdraft fee to an effective daily rate of 
15 basis points rather than 20 basis points. (The 15-basis-point fee 
equals an annual rate of 36 basis points, quoted on the basis of a 360-
day year and a 24-hour day.) The Board will evaluate the desirability 
of any further increases in the daylight overdraft fee, based on the 
objectives of the payments system risk program, two years after the 
implementation of the 15-basis-point fee. Any changes in the fee 
resulting from that review will be announced with a reasonable lead-
time for implementation.

EFFECTIVE DATE: April 13, 1995.

FOR FURTHER INFORMATION CONTACT: Jeffrey C. Marquardt, Assistant 
Director (202/452-2360) or Paul Bettge, Manager (202/452-3174), 
Division of Reserve Bank Operations and Payment Systems, Board of 
Governors of the Federal Reserve System. For the hearing impaired only: 
Telecommunications Device for the Deaf, Dorothea Thompson (202/452-
3544).

SUPPLEMENTARY INFORMATION:

I. Background on the Daylight Overdraft Fee Policy

    The Board's initial policy statement aimed at controlling daylight 
overdrafts, which became effective in 1986 (50 FR 21120, May 22, 1985), 
encouraged depository institutions to establish voluntary daylight 
overdraft limits, or caps, across all large-value payment systems. The 
cap levels were subsequently reduced by the Board, effective in 1988, 
in an effort to reduce further the level of overdrafts (52 FR 29255, 
August 6, 1987).
    While daylight overdrafts associated with funds transfers appeared 
to stabilize somewhat after the introduction of caps, daylight 
overdrafts associated with securities transfers, which were exempt from 
the original caps, continued to grow strongly. The Board became 
concerned, however, that further reductions in cap levels might 
seriously disrupt long-established market practices for settling 
financial transactions. Thus, in 1987, the Board commissioned two 
studies of the fundamental issues concerning payments system risk by a 
staff task force and an industry advisory group. Both groups agreed 
that the Federal Reserve's provision of free daylight overdraft credit 
was a subsidy that encouraged the overuse of such credit by private 
institutions. The advisory group emphasized the flexibility of daylight 
overdraft fees as a market-oriented means of allocating daylight credit 
to depository institutions that valued it most highly, while allowing 
them to determine the least costly means of reducing these overdrafts.
    The task force identified the following set of public policy 
objectives for the Board's daylight overdraft program:
    <bullet> Low direct credit risk to the Federal Reserve,
    <bullet> Low direct credit risk to the private sector,
    <bullet> Low systemic risk,
    <bullet> Rapid final payments,
    <bullet> Low operating expense of making payments,
    <bullet> Equitable treatment of all service providers and users in 
the payments system,
    <bullet> Effective tools for implementing monetary policy, and
    <bullet> Low transaction costs in the Treasury securities market.
    The task force recognized that the pursuit of these objectives 
might, at times, result in competing policy goals, and that policy 
options would need to be evaluated on the basis of whether they 
achieved an appropriate balance of the objectives. In particular, a 
policy might need to balance considerations of direct risks to the 
Federal Reserve, on the one hand, and systemic risks on the other.
    After completion of the two studies, the Board sought public 
comment on the issues associated with charging fees for daylight 
overdrafts, along with a number of other issues relating to its 
payments system risk program. The Board abolished cross-system net 
debit caps, but retained caps on overdrafts in Federal Reserve 
accounts, effective in 1991 (55 FR 22087, May 31, 1990). In 1992, the 
Board announced its intention to charge fees for daylight overdrafts 
(57 FR 47084, October 14, 1992). The Board also announced that the fee 
would be phased in so the Board could monitor the impact of the fee and 
make adjustments, if necessary.
    The current effective daily fee of 10 basis points was implemented 
on April 14, 1994. Under the policy adopted in 1992, the fee is 
scheduled to increase to 20 basis points on April 13, 1995, and to 25 
basis points on April 11, 1996. (The annual rate charged for daylight 
overdrafts is quoted on the basis of a 360-day year and a 24-hour day. 
The annual rates are officially quoted as 24, 48, and 60 basis points. 
The annual rate is converted to an effective daily rate by multiplying 
it by the fraction of the day that the Fedwire funds transfer system 
operates, currently 10 hours out of 24. This document will refer to the 
effective daily rates, because they are commonly used in public 
discussions of the daylight overdraft fee.)

II. Impact of the Initial Daylight Overdraft Fee

    In the aggregate, daylight overdrafts in Federal Reserve accounts 
have fallen by roughly 40 percent in response to the initial 10-basis-
point fee. Significant reductions in overdrafts occurred immediately 
upon implementation of fees, and the resulting levels of overdrafts 
have remained fairly constant since that time. Peak overdrafts, defined 
as the maximum aggregate daylight overdraft at the end of each minute 
during an operating day, have fallen from $124 billion, on average, 
during the six months before implementation of fees, to $70 billion, on 
average, from April 14 through the last reserve maintenance period in 
1994. Over the same period, aggregate per-minute average overdrafts, 
the base measure upon which fees are assessed, dropped from $70 billion 
to $43 billion. These figures represent reductions of 43 percent and 39 
percent respectively, in aggregate peak and per-minute average 
overdrafts.
[[Page 12560]]

    The reduction in overdrafts has been concentrated among a few 
institutions. For the six institutions with the largest daylight 
overdrafts (per-minute average overdrafts since April 14, 1994, of at 
least $1 billion), average overdrafts have fallen by $25 billion 
overall, or 48 percent. This decline represents 97 percent of the total 
reduction in per-minute average overdrafts. In contrast, 44 
institutions with overdrafts between $100 million and $1 billion had 
increased overdrafts, on average, with the implementation of fees. 
Thus, daylight overdraft fees appear to have resulted in a reduction in 
daylight overdrafts in the aggregate, as well as a reallocation of 
daylight overdrafts among institutions.
    A large portion of the reduction in overdraft levels observed since 
April has been related to securities-transfer activity on Fedwire. 
Average securities-related daylight overdrafts in Federal Reserve 
accounts have decreased by 47 percent since implementation of daylight 
overdraft fees. By contrast, average Fedwire-funds-related and non-
Fedwire-related daylight overdrafts combined have decreased by 26 
percent.

III. Impact on the Financial Markets

Government Securities Market

    The significant reduction in overdrafts related to securities-
transfer activity is due primarily to changes in settlement patterns in 
the government securities market, in particular the overnight 
repurchase agreement (RP) market, and to the concentration of 
government securities clearing services among a few institutions--the 
securities clearing banks. Typically, securities dealers finance their 
inventories of government securities through overnight RPs with 
institutional investors, who exchange cash for securities and hold the 
securities overnight in accounts at custodian depository institutions. 
These securities are usually returned on Fedwire to the dealers' 
clearing banks by the custodian banks at the opening of business. 
Because funds are simultaneously debited from the clearing banks' 
accounts when the securities are transferred on Fedwire, substantial 
overdrafts are created in the clearing banks' accounts at the Federal 
Reserve. Overdrafts persist until new RPs are arranged and settled by 
deliveries of securities out of accounts at the securities clearing 
banks later in the day. Before implementation of daylight overdraft 
fees, these overdrafts typically reached a peak at around 11:00 a.m. 
ET.
    The concentration of RP clearing activity at the securities 
clearing banks, along with the substantial associated daylight 
overdrafts, led these institutions to expect sizeable daylight 
overdraft charges. As a result, they developed automated systems to 
allocate daylight overdraft charges to the customers whose RP activity 
generated the overdrafts. Thus, strong incentives were created for 
securities dealers to modify RP trading and settlement practices in 
order to minimize charges assessed by the clearing banks.
    Since the implementation of daylight overdraft fees, securities 
dealers have accelerated the morning practice of arranging RPs, as well 
as the identification and pricing of the related RP securities. This 
practice has significantly improved the speed with which securities are 
delivered to RP counterparties, thereby shifting funds back to the 
clearing banks earlier in the day and reducing their average overdrafts 
at the Reserve Banks. In the aggregate, securities-related overdrafts 
now reach their maximum much earlier in the morning, at roughly 9:30 
a.m. ET, and the largest overdrafts persist for a shorter time.
    The decrease in securities-related daylight overdrafts may also be 
attributable, in part, to an increase in tri-party repurchase agreement 
activity. In a tri-party RP, both parties hold securities through a 
common securities custodian, and the transfer of RP securities is 
executed on the books of the custodian rather than on Fedwire. Tri-
party RPs may reduce daylight overdrafts if funds are also maintained 
at the custodian institution and not returned to investors on Fedwire 
during the day. Although no statistics are available on tri-party RP 
volume, major institutions have reported a large increase in tri-party 
RPs as a result of daylight overdraft fees. It should be noted, 
however, that steady growth in tri-party volume had been reported even 
before implementation of fees.

Other Markets and Transactions

    Daylight overdrafts related to Fedwire funds transfers are more 
widely dispersed across depository institutions, are generated by 
settlement practices associated with a variety of market activities, 
and are characterized by a much different intraday pattern than those 
related to securities transfers. The largest aggregate funds-related 
overdrafts occur between the hours of 12:30 p.m. and 4:30 p.m. ET, with 
the intraday peak generally occurring at around 2:30 p.m. This period 
corresponds to the current settlement timing conventions, or 
``window,'' for federal funds contracts in which overnight borrowings 
are repaid in the morning and the proceeds from new contracts are 
received in the afternoon. In addition, it is during the mid-afternoon 
period that other payment systems, such as securities depositories, 
impose the greatest settlement funding requirements on their members, 
further contributing to funds-related overdrafts in accounts at Reserve 
Banks.
    Because funds-related overdrafts and associated daylight overdraft 
charges are widely dispersed among institutions, the incentives to 
change market conventions or risk disrupting customer relationships are 
much smaller in the funds markets than in the securities markets.<SUP>1 
As a result, the intraday patterns of settlements that use the Fedwire 
funds transfer service as well as funds-related overdrafts have 
remained largely unchanged. Further, the aggregate level of funds-
related overdrafts has been reduced only moderately.

    \1\One exception is a procedural change implemented in response 
to daylight overdraft fees by the Participants Trust Company to 
permit partial disbursement of principal and interest payments on 
securities held at the depository to its participants earlier in the 
day.
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    When the Board adopted the daylight overdraft fee policy in 1992, 
it identified a number of measures that institutions might take to 
reduce funds-related overdrafts. These included delays of less time-
critical funds transfers, a shift of funds transfer activity from 
Fedwire to CHIPS, increased netting of funding contracts, the 
development of an intraday funds market, and the use of time-specific 
deliveries of funds.
    So far, these potential responses appear to have been implemented 
only to a limited degree. First, only four to five percent of daily 
Fedwire funds transfer value has shifted from before noon to later in 
the day, with a negligible impact on transfer volume. Second, 
discussions with market participants indicate that few institutions 
have shifted payments from Fedwire to CHIPS. Third, anecdotal evidence 
suggests that institutions have increased somewhat their use of netting 
for overnight federal funds contracts, yet it is unclear whether the 
increase is the result of daylight overdraft fees or other developments 
in the funds markets. Anecdotal evidence also suggests that 
institutions have increased their use of term federal funds contracts, 
although market participants suggest this increase may be related more 
to interest rate developments than to daylight overdraft fees. Finally, 
neither an intraday market nor a significant increase in the time-
specific delivery of funds has materialized since the implementation of 
daylight overdraft fees.
[[Page 12561]]

IV. Fee Options Considered by the Board

    In keeping with its policy of monitoring the impact of the fee 
during the phase-in period and adjusting it, if necessary, the Board 
considered three options for the next phase of the daylight overdraft 
fee: increase the fee to 20 basis points as scheduled, leave the fee at 
10 basis points, or increase the fee to an intermediate level of 15 
basis points for at least two years.

Increase the Fee to 20 Basis Points as Announced

    By most accounts, the implementation of the initial daylight 
overdraft fee has been a success. The 10-basis-point fee dramatically 
reduced the aggregate amount of daylight credit provided by the Federal 
Reserve, along with the associated direct credit risk, with little 
disruption in the financial sector. The fact that such a large 
reduction in overdrafts was possible as a result of a small fee 
suggests that the economic inefficiencies created by the provision of 
free daylight credit were substantial. The Board believes that a 
further increase in the fee will tend to reduce or eliminate any 
remaining subsidies associated with Federal Reserve daylight credit and 
reduce inefficiencies in the use of such credit.
    The Board considered that implementation of the previously 
announced increase in the fee to 20 basis points might prompt 
institutions to take additional steps to improve payment practices and 
reduce the use of daylight credit along with associated credit risks. 
The Board also believes, however, that an increase in the fee to 20 
basis points at this time could increase the probability of undesirable 
market effects contrary to the objectives of the Board's risk-control 
program.
    Perhaps the overriding concern is the potential for increases in 
systemic risk. The Board believes that systemic risk could increase if 
the higher fee were to induce a significant shift of payment activity 
from Fedwire, where transfers are immediately final and credit risk is 
absorbed and controlled by the central bank, to private systems, where 
payments are often provisional, risks are less transparent, and, in 
some cases, risks may not be fully controlled.
    A significant shift in transfer volume from Fedwire to CHIPS, for 
example, would be more likely to occur with a higher fee. Such a shift 
could increase systemic risk somewhat even though elaborate risk 
controls have been installed on CHIPS. The extent to which funds 
transfer volume would shift from Fedwire to CHIPS, however, is 
uncertain. CHIPS has historically been used primarily to settle 
international transactions, yet CHIPS participants might begin to use 
CHIPS routinely for domestic as well as international funds transfers. 
In the longer term, CHIPS potentially could attract additional members 
and significantly increase the scale of its domestic funds transfer 
activities.
    Industry participants have also suggested that the automated 
clearing house (ACH) system, typically associated with small-dollar 
transfers, could be used to make large-dollar payments traditionally 
made on Fedwire. Such a shift could increase systemic risk, because 
credit transfers made through ACH systems are provisional payments and 
real-time risk controls may be difficult to implement. Anecdotal 
evidence suggests that, so far, there has been a small increase in the 
use of the ACH system for large-dollar payments.
    There is also an increased likelihood that a higher daylight 
overdraft fee could prompt a shift in securities transfer activity from 
Fedwire to private securities depositories and the securities clearing 
banks. For example, in 1994 the Participants Trust Company (PTC) 
announced an initiative to make certain mortgage-backed federal agency 
securities eligible for its system. Also in 1994, the Depository Trust 
Company (DTC) issued a study of the feasibility of expanding its 
services to include U.S. government and federal agency securities, 
including mortgage-backed securities, in its same-day funds settlement 
securities system. In addition, the securities clearing banks might 
seek the custodial business of large institutional investors, who tend 
to hold large intraday funds balances, in order to increase tri-party 
RP volume and reduce daylight overdraft charges. The result of these 
potential developments could be an increased concentration of 
collateral, clearing, and deposit risks at private securities 
depositories and the clearing banks.
    The probability that funds and securities transfer activity would 
move off Fedwire is influenced by both cost and risk considerations. 
CHIPS, PTC and DTC incorporate net debit caps and collateralization 
requirements as part of their risk management systems. As a result, 
participants in these systems would have to weigh the costs of posting 
additional collateral to support additional payment activity against 
the costs of incurring daylight overdrafts in Federal Reserve accounts, 
as well as other factors such as settlement speed and finality. In the 
case of tri-party RPs, the large institutional RP counterparties are 
likely to be aware of the custodial risks in tri-party RPs and might 
demand a higher return for tri-party RPs as a result. If so, the 
premium for these tri-party RPs might be more costly to dealers than 
daylight overdraft charges.
    In addition to possible increases in systemic risk, a higher 
daylight overdraft fee could cause further delays in Fedwire funds 
transfers.<SUP>2 Furthermore, if payment volume moves to later in the 
day, there is less time available for institutions to recover from 
unforeseen operational problems and meet settlement obligations by the 
end of the banking day. As noted earlier, however, there has been only 
a modest shift in payments to later in the day with the 10-basis-point 
fee, and it remains unclear at what level the fee might cause excessive 
payment delays or disruptions in the financial sector.

    \2\In the extreme, delays could ultimately result in payment 
``gridlock'' as each institution, in order to avoid daylight 
overdraft fees, awaits incoming payments before initiating its own 
payments.
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    The Board also considered the potential for detrimental effects on 
the government securities market from a 20-basis-point fee. The Public 
Securities Association (PSA) has stated publicly that all possible low-
cost behavioral changes in the government securities markets to reduce 
overdrafts have already been made. The PSA expects that increases in 
costs to securities dealers from a higher daylight overdraft fee would 
ultimately be passed on to the Treasury in the form of higher borrowing 
costs, without any further reduction in overdrafts.
    It should be recognized, however, that the costs incurred so far by 
the securities dealers have largely been fixed costs to upgrade systems 
that will not be incurred again. Furthermore, the incremental impact of 
increased costs that might result from a higher daylight overdraft fee 
is quite small relative to the tick size in the auctions or secondary 
market for U.S. Government and federal agency securities. Also, Federal 
Reserve daylight overdraft charges passed through by the clearing banks 
to the dealers would ultimately be recouped by the Treasury through the 
Federal Reserve's payment to the Treasury of its net earnings.

Maintain the Fee at 10 Basis Points

    The Board considered maintaining the fee at 10 basis points based 
on the significant reductions in daylight overdrafts that have already 
occurred and concerns about undesirable systemic risks that might 
result from a higher fee. The Board decided that if the fee were not 
increased, there would be [[Page 12562]] very limited incentives for 
additional reductions in daylight overdrafts and credit risk. 
Furthermore, the Board was concerned that the momentum in the financial 
markets for the serious review and improvement of payment and 
settlement conventions might be lost if the fee were not increased.

Increase the Fee to 15 Basis Points for at Least Two Years

    The Board's decision to increase the fee to 15 rather than 20 basis 
points was based on three primary considerations. First, as noted 
above, the response by depository institutions and securities dealers 
to the 10-basis-point fee has improved RP settlement practices and has 
reduced significantly the use of Federal Reserve securities-related 
daylight credit, which before implementation of daylight overdraft fees 
constituted a large and growing portion of total daylight credit. The 
strong response in securities markets eases the need for sizeable 
increases in daylight overdraft fees over the next two years. Instead, 
a more limited increase to 15 basis points would provide incentives for 
additional improvements in securities settlements, while limiting 
increases in daylight overdraft charges borne by securities market 
participants. The improvements in settlement practices might include 
the use of time-specific deliveries of RP securities and the greater 
use of netting contracts between counterparties, where appropriate. 
Allowing two years before considering additional fee increases will 
permit sufficient time for the study of other potential changes in 
market conventions that could help reduce securities-related daylight 
overdrafts.
    Second, the Board believes that an increase in the daylight 
overdraft fee to 15 basis points will provide additional incentives for 
participants in funds markets to evaluate and modify payment practices 
that create daylight overdrafts. As discussed earlier, the responses in 
funds markets that the Board anticipated when it originally adopted the 
fee policy have not occurred to a significant degree. The uncertainty 
about the strength of the market response to daylight overdraft fees at 
various fee levels was one of the reasons that the Board announced that 
fees would be phased-in beginning at 10 basis points. The lack of 
significant response in the funds markets suggests that there is still 
room for improvements in funding and settlement practices and 
reductions in daylight overdrafts.
    Improvements in funding practices might include the greater use of 
``rollovers,'' ``continuing contracts,'' or ``term contracts'' for 
federal funds transactions, where appropriate. Further, the Payments 
Risk Committee, a committee of representatives from a selection of 
large U.S. depository institutions, has suggested that a higher fee may 
prompt the market to study changes in federal funds and other 
settlement timing conventions that contribute to a large portion of the 
aggregate level of daylight overdrafts. Also, a higher fee may prompt 
institutions to take measures to reduce daylight overdrafts related to 
customer payment activity.
    Third, the Board believes that concerns about systemic risk argue 
for a more gradual approach to raising daylight overdraft fees. It is 
important to note that the Board has taken a number of steps to limit 
systemic risks in the payments system, including adopting policies that 
apply to private-sector payment networks.<SUP>3 Most recently, the 
Board adopted a revised policy statement on risks in large-dollar 
multilateral netting systems (59 FR 67534, December 29, 1994). This 
policy statement applied the Lamfalussy minimum standards for netting 
arrangements to domestic as well as off-shore multilateral netting 
systems that clear U.S. dollar payments. At the same time, the Board 
announced that the staff would continue to study systemic risks in 
small-dollar payment systems, such as check and ACH clearing systems, 
as well as the need for any public policy changes in this area.

    \3\These policies include those for private large-dollar 
multilateral netting systems and private delivery-against-payment 
securities systems (54 FR 26092, 26104, June 21, 1989). In addition, 
in 1991, the New York Clearing House adopted changes to the CHIPS 
rules designed to enhance the assurances of settlement through the 
use of loss sharing and collateral requirements.
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    Thus, at this time, a limited increase in the daylight overdraft 
fee, particularly an increase to 15 basis points instead of 20 basis 
points, is likely to create very little incremental systemic risk in 
private-sector payment systems. In case greater concerns develop 
regarding systemic risks, the Board retains the option of reducing 
daylight overdraft fees and taking other appropriate measures to help 
limit such risks.
    The Board believes that the daylight overdraft fee program has been 
an important part of efforts by both the Board and the private sector 
over a number of years to reduce risk in the payments system. The 
fundamental theory of charging fees has been that cost-effective 
behavioral changes to reduce risks would be taken by depository 
institutions and their customers if modest fees were charged for 
daylight credit. Some changes in payment practices have already taken 
place, and additional changes appear to be possible. Thus, the Board 
believes a modest increase in the daylight overdraft fee at this time 
will continue to encourage private-sector efforts to reduce risks and 
to improve efficiency in the nation's payment and settlement systems.

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.<SUP>4 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 efficiently 
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.

    \4\These 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).
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    As noted in the Board's 1992 announcement of the daylight overdraft 
fee policy, the Board does not believe that imposition of daylight 
overdraft fees adversely affects the ability of private-sector payments 
system participants to compete with the Reserve Banks in providing 
payments services. Private-sector correspondent banks have the ability 
to charge for intraday credit extended to their customers, either 
explicitly (as do the Reserve Banks) or implicitly as part of overall 
service fees. The Board stated in 1992 that private-sector payment 
systems might benefit from daylight overdraft fees, if the fee caused 
institutions to shift payments from the Federal Reserve to private 
systems in order to avoid daylight overdraft fees. Although the shift 
to private systems might not be as large under a 15-basis-point fee as 
under a 20-basis-point fee, the Board believes that the lower fee might 
still produce payment shifts, as discussed in the supplementary 
information above, as well as a reduced cost burden for private-sector 
payments system participants.

VI. Administrative Procedure Act

    The notice and comment requirements of the Administrative 
[[Page 12563]] Procedure Act (``APA'') do not apply to matters relating 
to ``public property, loans, grants, or contracts.'' (5 U.S.C. 
553(a)(2)) The daylight overdraft fee relates to ``loans,'' in that the 
fee is for an extension of intraday credit by Federal Reserve Banks, 
and ``contracts,'' in that the fee is part of an agreement between 
institutions and the Federal Reserve Banks for the provision of Reserve 
Bank payment services. Therefore, the APA does not require the Board to 
seek notice and comment on the fee revision.
    Additionally, the Board finds for good cause that notice and 
comment on the fee revision is unnecessary, in accordance with 5 U.S.C. 
553(b)(B). The Board originally adopted a policy, after notice and 
comment, to implement an annual fee of 48 basis points (equivalent to 
20 basis points for a 10-hour Fedwire day) on April 13, 1995. The 
Board's action today will reduce the previously announced 1995 fee to 
an annual rate of 36 basis points (equivalent to 15 basis points for a 
10-hour Fedwire day.) Because the Board's action reduces burden on 
affected institutions compared to the previously announced policy, the 
Board believes that seeking additional comment on this action is 
unnecessary.

VII. Policy Statement

    The Board has adopted the following change in its policy statement 
that will replace paragraphs two and three of part (I)(B) in its 
``Federal Reserve Policy Statement on Payments System Risk'' under 
headings ``I. Federal Reserve Policy'' and ``B. Pricing'':
    The overdraft fee is 36 basis points (annual rate), quoted on the 
basis of a 24-hour day. To obtain the daily overdraft fee (annual rate) 
for the standard Fedwire operating day, the quoted 36-basis-point fee 
is multiplied by the fraction of a 24-hour day during which Fedwire is 
scheduled to operate. For example, under a 10-hour scheduled Fedwire 
operating day, the overdraft fee equals 15 basis points (36 basis 
points multiplied by 10/24). The 36-basis-point fee is effective April 
13, 1995.
    The 36-basis-point fee (times an operating hour fraction) will be 
in effect for at least two years. A change in the length of the 
scheduled Fedwire operating day would not change the effective fee 
because the fee is applied to average overdrafts which, in turn, would 
be deflated by the change in the operating day. The Board will evaluate 
the desirability of an increase in the daylight overdraft fee, based on 
the objectives of the payments system risk program, two years after the 
implementation of the 36-basis-point fee. Any changes in the fee 
resulting from that review will be announced with a reasonable lead-
time for implementation.

    By order of the Board of Governors of the Federal Reserve 
System, March 2, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-5530 Filed 3-6-95; 8:45 am]
BILLING CODE 6210-01-P