This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

72107 

Vol. 79, No. 234 

Friday, December 5, 2014 

1Operating Circular 3 is available at 

www.frbservices.org/regulations/operating_

circulars.html. 

2 12 CFR part 229; UCC Article 4. 

3 78 FR 74130 (Dec. 10, 2013). The Federal 

Reserve’s current policy on payment system risk is 

available at www.federalreserve.gov/

paymentsystems/psr_policy.htm. 

4 78 FR 74041 (Dec.10, 2013). 

5All times are eastern time unless otherwise 

specified. Section 210.9(b)(3)(i) sets forth similar 

times of day if the paying bank closes voluntarily 

on a Reserve Bank banking day. Section 

210.9(b)(4)(i) sets forth analogous times if the 

paying bank receives an item on a banking day on 

which the Reserve Bank is closed, i.e., a business 

day that is not a banking day for the Reserve Bank. 

6Section 210.12(i) of Regulation J provides that 

recipients of returned items must settle with 

Reserve Banks in the same manner and by the same 

time as items presented for payment. 

FEDERAL RESERVE SYSTEM 

12 CFR Part 210 

[Regulation J; Docket No. R–1473] 

RIN 7100–AE06 

Collection of Checks and Other Items 

by Federal Reserve Banks and Funds 

Transfers Through Fedwire: Time of 

Settlement by a Paying Bank for an 

Item Received From a Reserve Bank 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Final rule. 

SUMMARY: The Board of Governors 

(Board) is adopting amendments to 

subpart A of its Regulation J, Collection 

of Checks and Other Items by Federal 

Reserve Banks and Funds Transfers 

through Fedwire, to permit the Federal 

Reserve Banks (Reserve Banks) to 

require paying banks that receive 

presentment of checks from the Reserve 

Banks to make the proceeds of 

settlement for those checks available to 

the Reserve Banks as soon as one halfhour after receipt of the checks. The 

amendments will also permit the 

Reserve Banks to obtain settlement from 

paying banks by as early as 8:30 a.m. 

eastern time for checks that the Reserve 

Banks present. These amendments to 

Regulation J are consistent with the 

revised method for posting debits and 

credits to banks’ Federal Reserve 

accounts to measure daylight overdrafts 

under amendments to the Federal 

Reserve Policy on Payment System Risk 

(PSR policy) that the Board is 

concurrently adopting. The Board is 

also adopting a technical amendment to 

the definition of ‘‘Administrative 

Reserve Bank.’’ 

DATES: Effective Date: The technical 

amendment to § 210.2(c) is effective on 

December 5, 2014. All other 

amendments are effective on July 23, 

2015. Applicability Date: All items 

scheduled to settle on July 23, 2015, and 

after will post according to the new 

posting rule procedures for these 

transactions, regardless of date of 

deposit. 

FOR FURTHER INFORMATION CONTACT: 

Susan V. Foley, Senior Associate 

Director (202/452–3596), Samantha J. 

Pelosi, Manager (202/530–6292), Scott J. 

Anchin, Senior Financial Services 

Analyst (202/452–3638), Division of 

Reserve Bank Operations and Payment 

Systems; or Evan Winerman, Senior 

Attorney (202/872–7578), Legal 

Division; for users of 

Telecommunication Devices for the Deaf 

(TDD) only, contact 202/263–4869. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Subpart A of Regulation J, Collection 

of Checks and Other Items by Federal 

Reserve Banks, governs the collection of 

checks and the handling of returned 

checks by the Reserve Banks. The 

purpose of the subpart is to provide 

rules for collecting and returning items 

and settling balances. Among other 

things, the subpart specifies the time 

and manner in which paying banks 

must settle for items presented to them 

by the Reserve Banks. 

In accordance with Subpart A, the 

Reserve Banks have issued Operating 

Circular 3 (OC 3), Collection of Cash 

Items and Returned Checks, which 

provides specific terms and conditions 

under which the Reserve Banks will 

handle checks.1 The Board’s Regulation 

CC, Availability of Funds and Collection 

of Checks, and provisions of the 

Uniform Commercial Code (UCC), as 

adopted in a state, also govern the 

collection, presentment, and return of 

checks, to the extent those provisions 

are not inconsistent with Regulation J.2

On December 10, 2013, the Board 

requested comment on proposed 

changes to the PSR policy.3 The changes 

related to the Board’s procedures for 

posting debit and credit entries to 

depository institutions’ Federal Reserve 

accounts for automated clearinghouse 

(ACH) debit transactions and 

commercial check transactions. At the 

same time, the Board requested 

comment on proposed changes to 

Regulation J that would conform to the 

proposed changes to the PSR policy.4

Currently, § 210.9(b)(2)(i) of 

Regulation J provides that the proceeds 

of a paying bank’s settlement must be 

made available to its Administrative 

Reserve Bank by the latest of (1) the next 

clock hour that is at least one hour after 

the paying bank receives the check; (2) 

9:30 a.m. eastern time; or (3) such later 

time as provided in the Reserve Banks’ 

operating circulars.5 Under this section, 

9:30 a.m. is the earliest time a paying 

bank is required to settle for an item, 

and there has to be at least one hour 

between the time the item was 

presented to the paying bank and the 

time the paying bank settles for the 

item. The same rules apply to the 

settlement of returned items under 

§ 210.12(i).6

Section 12.2 of the Reserve Banks’ 

Operating Circular 3 currently sets 11:00 

a.m. as the earliest settlement time (later 

than 9:30 a.m. set forth in Regulation J). 

Under section 12.2, the proceeds of a 

paying bank’s settlement must be 

available to its Administrative Reserve 

Bank by the later of 11:00 a.m. or the 

next clock hour that is at least one hour 

after the paying bank receives the item, 

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

the paying bank. 

Consistent with the proposed PSR 

policy changes, the Board proposed that 

§ 210.9(b)(2)(i) of Regulation J be revised 

to state that the paying bank shall settle 

for an item by the latest of (1) the next 

clock hour or clock half-hour that is at 

least one half-hour after the paying bank 

receives the item; (2) 8:30 a.m.; or (3) 

such later time as provided in the 

Reserve Banks’ operating circulars. For 

example, if a Reserve Bank presents an 

item by 8:00 a.m., the paying bank 

would be required to settle for the item 

at 8:30 a.m., unless a later settlement 

time were provided for in the Reserve 


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72108 Federal Register / Vol. 79, No. 234 / Friday, December 5, 2014 / Rules and Regulations 

7The comment letters are available at http://

www.federalreserve.gov/apps/foia/

proposedregs.aspx. 

8 12 CFR 204.10. 

9The Board notes that Federal Home Loan Banks 

(FHLBs) are not eligible to earn interest on balances 

in Federal Reserve accounts, but can act as passthrough correspondents. Per § 204.10 of Regulation 

D, in cases of balances maintained by pass-through 

correspondents that are not interest-eligible 

institutions, Reserve Banks shall pay interest only 

on the balances maintained to satisfy a reserve 

balance requirement of one or more respondents, 

and the correspondents shall pass back to its 

respondents interest paid on balances in the 

correspondent’s account (12 CFR 204.10). The 

Board notes also that voluntary collateralization of 

daylight overdrafts and the $150 fee waiver are not 

available to Edge and agreement corporations, 

bankers’ banks that have not waived their 

exemption from reserve requirements, limitedpurpose trust companies, government-sponsored 

enterprises (including FHLBs), and international 

organizations. These types of institutions do not 

have regular access to the discount window and, 

therefore, are expected not to incur daylight 

overdrafts in their Federal Reserve accounts. 

10 In September 1997, the Board revised § 210.9(b) 

to explicitly refer to 9:30 a.m. (rather than one hour 

after the opening of Fedwire) as the earliest time a 

paying bank could be required to settle for an item. 

This revision to § 210.9(b) was intended to ensure 

the earliest settlement time for checks remained 

unchanged when the scheduled opening of Fedwire 

moved from 8:30 a.m. to an earlier hour. 62 FR 

48166, 48169 (Sept. 15, 1997). In December 1997, 

the scheduled opening of Fedwire was moved from 

8:30 a.m.to 12:30 a.m., and in May 2004, it moved 

to 9:00 p.m. on the preceding calendar day. For 

example, for the Reserve Banks’ banking day of 

Tuesday, Fedwire opens at 9:00 p.m. on Monday. 

11 In addition, the proposed posting rules would 

give earlier availability for items deposited with the 

Reserve Banks and for credit adjustments and 

corrections. 

Banks’ operating circulars. The Board 

proposed similar changes in 

§§ 210.9(b)(3)(i) and (b)(4)(i). 

The Board also proposed to define 

‘‘clock half-hour,’’ a new term in 

§ 210.2(p)(2), to mean a time that is on 

the half-hour (for example, 1:30 or 2:30). 

Section 210.2(p), which the Board 

proposed to redesignate as § 210.2(p)(1), 

currently defines the term ‘‘clock hour’’ 

as a time that is on the hour (for 

example, 1:00 or 2:00). 

II. Summary of Public Comments and 

Analysis 

The Board received six comments 

submitted by depository institution 

trade organizations on the proposed 

amendments to Regulation J.7 The Board 

considered these comments in 

developing its final rule as discussed 

below. 

A. One Half-Hour Window Between 

Presentment and Settlement 

The Board requested comment on 

whether one half-hour between receipt 

of items by a paying bank and the 

paying bank’s settlement is sufficient for 

a paying bank to perform a limited 

verification of cash letters and 

determine whether to settle for or return 

the cash letter. The Board also requested 

comment on whether a shorter period 

between presentment and settlement 

would be appropriate (for example, 

fifteen minutes). 

Two commenters, the American 

Bankers Association and the 

Independent Community Bankers of 

America, supported the Board’s 

proposal to reduce the settlement 

window to one half-hour, agreeing that 

advances in check processing allow for 

a shorter period between check 

presentment and settlement. One 

commenter, the American Bankers 

Association, did not support shortening 

the period further to 15 minutes but did 

not provide a specific reason. 

The Board believes that the almost allelectronic nature of check processing 

that currently exists makes one halfhour between presentment and 

settlement sufficient because of the 

reduced time required to verify cash 

letters in an electronic environment. 

The Board also believes that sufficient 

tools are available to depository 

institutions to mitigate any adverse 

effect that movement to a one half-hour 

settlement window would have on an 

institution’s Federal Reserve account 

balance. Past trends indicate that an 

institution should be able to predict 

within a reasonable margin of error the 

approximate dollar value of the checks 

it expects the Reserve Banks to present 

and should be able to hold balances 

sufficient to cover that amount. The 

Reserve Banks now pay interest on most 

institutions’ Federal Reserve account 

balances, reducing institutions’ 

opportunity cost (that is, loss of interest) 

associated with holding higher account 

balances overnight.8 In addition, the 

PSR policy allows eligible institutions 

to collateralize their daylight overdrafts 

to avoid paying a fee. For each twoweek reserve maintenance period, 

depository institutions also receive a 

$150 fee waiver, reducing the burden on 

institutions that might incur small 

amounts of uncollateralized daylight 

overdrafts.9

For these reasons, the Board is 

adopting as proposed the amendments 

shortening the minimum time period 

between receipt of checks by a paying 

bank and the paying bank’s settlement 

to one half-hour. The Board did not 

receive any comments on the proposal 

to define ‘‘clock half-hour’’ as a new 

term in § 210.2(p)(2) and is adopting the 

new term as proposed. 

B. Earliest Settlement Time at 8:30 a.m. 

The Board requested comment on 

whether to permit the Reserve Banks to 

obtain settlement from a paying bank for 

a check by as early as 8:30 a.m. The 

Board also requested comment on the 

feasibility of settlement earlier than 8:30 

a.m., given the current almost allelectronic check processing 

environment, and whether an earlier 

settlement time would even better align 

presentment to settlement.10

Two commenters, the American 

Bankers Association and the 

Independent Community Bankers of 

America, supported the proposal to 

allow the Reserve Banks to obtain 

settlement from a paying bank for a 

check by as early as 8:30 a.m., noting 

that the rules that allow the Reserve 

Banks to pay interest on account 

balances held by institutions reduces 

the cost that institutions might incur to 

hold funds overnight to cover any 

checks presented early the next 

morning. One commenter, the American 

Bankers Association, did not support 

the proposal to move the settlement 

time earlier than 8:30 a.m. but did not 

provide a specific reason. Four 

commenters, the Credit Union National 

Association, the Georgia Credit Union 

League, the Missouri Credit Union 

Association, and the National 

Association of Federal Credit Unions, 

expressed concern that some smaller 

institutions might be negatively affected 

by the proposed change and might have 

to increase their Federal Reserve 

account balances to settle presented 

checks by holding higher balances 

overnight, arranging for additional 

funding before settlement time, or 

incurring daylight overdrafts. 

The Board recognizes that some 

depository institutions will need to fund 

their accounts earlier in order to settle 

for checks by as early as 8:30 a.m. or 

incur daylight overdrafts. The Board 

believes, however, that sufficient tools 

are available to depository institutions 

to mitigate any adverse effect that a 

change to 8:30 a.m. may present. As 

discussed earlier, the Reserve Banks 

now pay interest on most institutions’ 

Federal Reserve account balances, 

eligible institutions can collateralize 

their daylight overdrafts to avoid paying 

a fee, and depository institutions receive 

a $150 fee waiver for each two-week 

reserve maintenance period. The 

changes to the posting rules of the PSR 

policy and to Regulation J better align 

the policy and regulation with today’s 

electronic check processing 

environment, in which over 90 percent 

of checks are available to be presented 

by 8:00 a.m. and prompt settlement is 

possible for the majority of the value of 

check activity.11 Accordingly, the Board 


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Federal Register / Vol. 79, No. 234 / Friday, December 5, 2014 / Rules and Regulations 72109 

12 12 CFR 210.2(c). 

13See 74 FR 25629, 25633–34 (May 29, 2009). 

14 5 U.S.C. 553(b)(3)(B). 

15 5 U.S.C. 553(d)(3). 

16Federal Reserve Regulatory Service, 7–145.2. 

17 12 CFR 210.9(b)(1) and (b)(5). 

18 12 CFR 229.36(f)(2). 

19The request for comment and the subsequent 

notice of the Board’s decision can be found, 

respectively, at 63 FR 12700 (March 16, 1998) and 

63 FR 68701 (December 14, 1998). 

20NSS is a multilateral settlement service owned 

and operated by the Reserve Banks. The service is 

offered to depository institutions that settle for 

participants in clearinghouses, financial exchanges, 

and other clearing and settlement groups. 

Settlement agents, acting on behalf of depository 

institutions in a settlement arrangement, 

electronically submit settlement files to the Reserve 

Banks. Files are processed upon receipt, and entries 

are automatically posted to the depository 

institutions’ Reserve Bank accounts. The NSS file 

submission window is currently 8:30 a.m. to 5:00 

p.m. 

is adopting the amendments to 

Regulation J, § 210.9(b) as proposed. The 

Reserve Banks plan to amend OC 3 to 

conform to the changes in Regulation J. 

C. Effective date 

The Board proposed that the changes 

to the PSR policy and these conforming 

changes to Regulation J would become 

effective six months after publication in 

the Federal Register. The Board 

requested comment on whether six 

months provided paying banks with 

sufficient time to make any necessary 

operational changes. 

Five commenters, the American 

Bankers Association, the Credit Union 

National Association, the Georgia Credit 

Union League, the Independent 

Community Bankers of America, the 

Missouri Credit Union Association, 

believed that a six-month lead time 

would allow enough time to make any 

necessary operational changes. One 

commenter, the National Association of 

Federal Credit Unions, requested that 

the Board allow a one-year 

implementation period, stating that the 

proposed six-month implementation 

period would not allow institutions 

enough time to adjust their policies and 

procedures to reduce the chances of 

incurring daylight overdraft fees. The 

Board is adopting an effective date of 

July 23, 2015. All items scheduled to 

settle on this date and after will post 

according to the new posting rule 

procedures for these transactions, 

regardless of date of deposit. 

III. Technical Amendment 

The Board is also adopting a technical 

amendment to the definition of 

‘‘Administrative Reserve Bank.’’ 12

Section 210.2(c) states that an 

‘‘Administrative Reserve Bank’’ is the 

Reserve Bank in whose District the 

entity is located, as determined under 

the procedure described in § 204.3(b)(2) 

of the chapter (Regulation D). The Board 

has relocated § 204.3(b)(2) of Regulation 

D to § 204.3(g).13 Accordingly, the Board 

is amending the definition of 

‘‘Administrative Reserve Bank’’ in 

§ 210.2(c) to cross-reference § 204.3(g) 

rather than § 204.3(b)(2). 

The Board did not provide public 

notice or request comment regarding 

this technical amendment. Pursuant to 

section 553(b)(3)(B) of the 

Administrative Procedure Act,14 the 

Board finds that public notice and 

comment is unnecessary because the 

technical amendment does not effect a 

substantive change; rather, the technical 

amendment conforms § 210.2(c) to 

reorganized Regulation D. For the same 

reasons, the Board finds that there is 

good cause for the technical amendment 

to be effective immediately, rather than 

thirty days after its publication date.15

IV. Competitive Impact Analysis 

The Board conducts a competitive 

impact analysis when it considers a rule 

or policy change that may have a 

substantial effect on payment system 

participants. Specifically, the Board 

determines whether there would be a 

direct and material adverse effect on the 

ability of other service providers to 

compete with the Federal Reserve due 

to legal differences or due to the Federal 

Reserve’s dominant market position 

deriving from such legal differences.16 If 

such legal differences exist, the Board 

will assess whether the same objectives 

could be achieved by a modified 

proposal with lesser competitive impact 

or, if not, whether the benefits of the 

proposal outweigh the effect on 

competition. 

The Board believes that the 

amendments to Regulation J do not have 

a direct and material adverse effect on 

the ability of other service providers to 

compete effectively with the Reserve 

Banks in providing similar services. 

Under Regulation J, the Reserve Banks 

have the legal ability to obtain same-day 

settlement for checks they present 

before the paying bank’s cut-off hour 

(typically 2:00 p.m. local time) through 

‘‘auto-charge,’’ that is, a direct debit to 

the Federal Reserve account of the 

paying bank or its correspondent 

settlement agent.17 Under amended 

Regulation J, the Reserve Banks could 

present a check at any time before the 

paying bank’s cut-off hour and debit the 

account of the paying bank or its 

correspondent settlement agent on the 

next clock hour or half-hour that is at 

least one half-hour after presentment. 

In contrast, the latest that a privatesector bank may present a paper check 

for same-day settlement is 8:00 a.m. 

local time. Section 229.36(f) of 

Regulation CC requires the paying bank 

to settle for the check by credit to a 

Reserve Bank account designated by the 

presenting bank by the close of Fedwire 

(currently 6:30 p.m.) or by another 

agreed-upon method and time.18 Thus, 

the Reserve Banks may present checks 

later in the day for same-day settlement 

than private-sector banks. In addition, 

the Reserve Banks may obtain 

settlement earlier in the day than 

private-sector collecting banks and, in 

turn, may pass credits for deposited 

checks earlier in the day without 

incurring significant intraday float. 

In March 1998, the Board requested 

comment on whether these legal 

differences between the rights of the 

Reserve Banks and private-sector 

presenting banks provided the Reserve 

Banks with a competitive advantage and 

whether the Board should take action to 

reduce the differences.19 Commenters 

generally concluded that the costs of 

further changes outweighed any 

advantage of the Reserve Banks. In 

particular, commenters noted the 

efficiency of the Reserve Bank’s autocharge process for paying banks, and 

stated that moving the private-sector 

presentment deadline to later in the day 

or eliminating the direct debit of Federal 

Reserve accounts for check 

presentments would result in higher 

costs to paying banks and their business 

customers in terms of account 

management, settlement funds transfer 

fees, and shortened processing 

windows, and that those costs would 

outweigh the benefits gained by 

presenting banks. Based on an analysis 

of the comments, the Board took no 

further action. 

Currently, institutions may determine, 

as part of the agreement between a 

presenting bank and a paying bank, the 

time at which settlement for electronic 

checks is required to be funded. A 

presenting bank and a paying bank 

could agree, for example, to a minimum 

time between presentment and 

settlement. For presenting banks and 

paying banks that opt to use a check 

clearinghouse rather than directly 

exchange checks, private-sector 

clearinghouses have the option to use 

the Reserve Banks’ National Settlement 

Service (NSS) to effect settlement of 

checks or may settle by directing their 

members to initiate funds transfers over 

the Reserve Banks’ Fedwire Funds 

Service.20 Beginning in January 2015, 

the NSS file submission window will be 

7:30 a.m. to 5:30 p.m. Fedwire Funds 

operating hours begin at 9:00 p.m. the 


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72110 Federal Register / Vol. 79, No. 234 / Friday, December 5, 2014 / Rules and Regulations 

21 79 FR 6674 (Feb. 14, 2014). 

22A small number of institutions could be 

ineligible to receive intraday credit and would 

incur overdrafts. To avoid violating the PSR policy 

and incurring fees, these institutions would need to 

increase funding either overnight or early in the 

morning. Some of these institutions could be 

eligible to receive interest on Federal Reserve 

account balances. 

previous calendar day and end at 6:30 

p.m. 

Under the final amendments to 

Regulation J and the recently adopted 

changes to the PSR policy posting rules, 

the bulk of the Reserve Banks’ postings 

of credits to senders and debits to 

paying banks for commercial check 

transactions will shift to earlier in the 

day. The value of checks a bank sends 

to the Reserve Banks could be higher or 

lower than the value it receives from the 

Reserve Banks. As a result, the earlier 

posting of commercial check 

transactions may be viewed as more or 

less attractive, depending on whether 

the value of an institution’s check 

credits is higher or lower than the value 

of its check debits. Further, privatesector institutions can achieve 

improvements in earlier settlement 

similar to those provided by the rule 

and the PSR policy changes through 

private agreements among participants, 

as well as the use of NSS. 

More recently, the Board requested 

comment on the continued utility of the 

Regulation CC same-day settlement rule 

for paper checks and whether the rule 

should be applied to electronic check 

presentments by private-sector banks. 

The Board also noted that if, in the 

future, it proposes to eliminate the 

same-day settlement rule, it could also 

propose to retain the proscription 

against paying banks’ assessment of 

presentment fees in order to maintain 

the current balance of bargaining power, 

as well as reduce the competitive 

disparities in presentment abilities 

between the Reserve Banks and privatesector banks.21 The Board is in the 

process of analyzing these comments 

and will discuss these issues, as 

appropriate, at a later date in the context 

of the final amendments to Regulation 

CC. In the meantime, the Board does not 

believe that the changes to Regulation J 

reducing the minimum time between 

presentment and settlement to 30 from 

60 minutes, and moving the earliest 

settlement time to 8:30 a.m. from 9:30 

a.m., changes the Reserve Banks’ 

competitive position versus privatesector presenting banks in a material 

way. 

V. Final Regulatory Flexibility Analysis 

The Board has reviewed the final 

regulation in accordance with section 

3(a) of the Regulatory Flexibility Act 

(RFA) (5 U.S.C. 601 et seq.). The rule 

would apply to all depository 

institutions that receive presentment or 

return of checks from the Reserve 

Banks. Based on current information, 

the Board believes that the final rule 

would not have a significant economic 

impact on a substantial number of small 

entities (5 U.S.C. 605(b)). Nonetheless, a 

Final Regulatory Flexibility Analysis 

has been prepared in accordance with 5 

U.S.C. 604, after consideration of 

comments received during the public 

comment period. 

Statement of the Need for, and 

Objectives of the Final Rule 

These final amendments to Regulation 

J are necessary to conform the required 

settlement times for checks presented by 

the Reserve Banks to the method for 

posting debits and credits to 

institutions’ Federal Reserve accounts to 

measure daylight overdrafts under 

recent revisions to the PSR policy. The 

Board believes that the Regulation J 

revisions and the PSR policy posting 

rules better align the settlement for 

checks with actual deposit and 

presentment times, reflecting the 

industry’s almost complete shift from 

paper to electronic check processing. 

Public Comments 

The Board requested information and 

comment on any costs that would arise 

from the application of the proposed 

rule. Four institutions expressed 

concern that some smaller institutions 

might be negatively affected by the 

proposed change and might have to 

increase their Federal Reserve account 

balances to settle presented checks by 

holding higher balances overnight, 

arranging for additional funding before 

settlement time, or incurring daylight 

overdrafts. As discussed earlier, the 

Board believes that sufficient tools are 

available to depository institutions to 

mitigate any adverse effect. For 

example, the Reserve Banks now pay 

interest on most institutions’ Federal 

Reserve account balances, eligible 

institutions can collateralize their 

daylight overdrafts to avoid paying a 

fee, and depository institutions receive 

a $150 fee waiver for each two-week 

reserve maintenance period.22 As 

further discussed earlier, under the PSR 

policy posting rules, the bulk of the 

Reserve Banks’ postings of debits to 

paying institutions for commercial 

check transactions will shift to earlier in 

the day, allowing the Reserve Banks to 

provide credits to depositing 

institutions earlier, thus mitigating 

adverse effects on depository 

institutions. 

Small Entities Affected by the Rule 

The final rule affects all institutions 

that receive checks or returned checks 

handled by the Reserve Banks. The 

Board believes that virtually all 

depository institutions receive checks or 

returned checks handled by the Reserve 

Banks on at least an occasional basis. 

Pursuant to regulations issued by the 

Small Business Administration (SBA) 

(13 CFR 121.201), a ‘‘small banking 

organization’’ includes a depository 

institution with $550 million or less in 

total assets. Based on data reported as of 

June 30, 2014, the Board believes that 

there are approximately 11,750 small 

depository institutions. 

Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

The final rule would permit the 

Reserve Banks to require a paying bank 

to settle for an item by as early as 8:30 

a.m., instead of 9:30 a.m., and as soon 

as one half-hour, instead of one hour, 

after it receives the item from the 

Reserve Banks. Paying banks may 

choose to fund their accounts to 

accommodate the earlier settlement time 

by holding sufficient balances overnight 

or arranging for funding before the 

settlement time. Otherwise, paying 

banks would incur daylight overdrafts 

in their Federal Reserve account. The 

rule contains no other reporting, 

recordkeeping, or compliance 

requirements. 

Steps Taken To Minimize Impact of, 

and Significant Alternatives to, the 

Final Rule 

As noted earlier, four commenters, the 

Credit Union National Association, the 

Georgia Credit Union League, the 

Missouri Credit Union Association, and 

the National Association of Federal 

Credit Unions, suggested that some 

smaller institutions might be negatively 

affected by the proposed change and 

might have to increase their Federal 

Reserve account balances to settle 

presented checks by holding higher 

balances overnight or arranging for 

additional funding before settlement 

time. Otherwise, paying banks would 

incur daylight overdrafts. As discussed 

earlier, the Board believes that sufficient 

tools are available to depository 

institutions to mitigate any adverse 

effect on an institution’s Federal 

Reserve account balance (including 

interest on Federal Reserve account 

balances, collateralization of daylight 

overdrafts to avoid paying a fee, and a 

$150 fee waiver for each two-week 

reserve maintenance period). As further 


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Federal Register / Vol. 79, No. 234 / Friday, December 5, 2014 / Rules and Regulations 72111 

discussed earlier, under the PSR policy 

posting rules, the bulk of the Reserve 

Banks’ postings of debits to paying 

institutions for commercial check 

transactions will shift to earlier in the 

day, allowing the Reserve Banks to 

provide credits to depositing 

institutions earlier, thus mitigating 

adverse effects on depository 

institutions. 

Alternatively, the Board could have 

adopted a rule that permits the Reserve 

Banks to require a paying bank to settle 

for an item at a time earlier than 8:30 

a.m. or leave the earliest possible 

settlement time at 9:30 a.m. The Board 

believes the proposed time of 8:30 a.m. 

better achieves the Board’s goal of 

aligning presentment to settlement, and 

better aligns with today’s electronic 

check processing environment, than the 

existing 9:30 a.m. settlement time under 

Regulation J. In addition, the Board 

believe that the proposed settlement 

time of 8:30 a.m. will impose minimal 

costs on paying banks. The Board 

sought comment on (1) whether 

permitting the Reserve Banks to obtain 

settlement from a paying bank for a 

check by as early as 8:30 a.m. was 

appropriate and (2) the feasibility of 

settlement prior to 8:30 a.m. and 

whether an earlier posting time would 

even better align presentment to 

settlement. (See discussion earlier in 

section II.B.) 

In addition, in lieu of proposing to 

permit the Reserve Banks to require a 

paying bank to settle as soon as one 

half-hour after it receives the item from 

the Reserve Banks, the Board could have 

proposed a shorter or longer period. The 

Board believes the final time period of 

one half-hour promotes the Board’s 

objective of minimizing the window 

between presentment and settlement to 

reflect technological and operational 

developments while continuing to 

provide paying banks with sufficient 

time to perform a limited verification of 

cash letters. The Board requested 

comment on whether one half-hour 

between presentment and settlement is 

appropriate or if a shorter window 

would be sufficient. (See discussion 

earlier in section II.A.) 

VI. Paperwork Reduction Act Analysis 

In accordance with the Paperwork 

Reduction Act (PRA) of 1995 (44 U.S.C. 

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

the Board reviewed the final rule under 

the authority delegated to the Board by 

the Office of Management and Budget 

(OMB). No collections of information 

pursuant to the PRA are contained in 

the final rule. 

List of Subjects in 12 CFR Part 210 

Banks, Banking, Federal Reserve 

System. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board amends Regulation 

J, 12 CFR part 210, as follows: 

PART 210—COLLECTION OF CHECKS 

AND OTHER ITEMS BY FEDERAL 

RESERVE BANKS AND FUNDS 

TRANSFERS THROUGH FEDWIRE 

(REGULATION J) 

■ 1. The authority citation for part 210 

is revised to read as follows: 

Authority: 12 U.S.C. 248(i), (j), and 248–1, 

342, 360, 464, 4001–4010, and 5001–5018. 

■ 2. In § 210.2, revise paragraphs (c) and 

(p) to read as follows: 

§ 210.2 Definitions. 

* * * * * 

(c) Administrative Reserve Bank with 

respect to an entity means the Reserve 

Bank in whose District the entity is 

located, as determined under the 

procedure described in § 204.3(g) of this 

chapter (Regulation D), even if the entity 

is not otherwise subject to that section. 

* * * * * 

(p) Clock hour and clock half-hour. 

(1) Clock hour means a time that is on 

the hour, such as 1:00, 2:00, etc. 

(2) Clock half-hour means a time that 

is on the half-hour, such as 1:30, 2:30, 

etc. 

* * * * * 

■ 3. In § 210.9, revise paragraphs (b)(2), 

(3), and (4) to read as follows: 

§ 210.9 Settlement and payment. 

* * * * * 

(b) * * * 

(2) Time of settlement. (i) On 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— 

(A) The next clock hour or clock halfhour that is at least one half-hour after 

the paying bank receives the item; 

(B) 8:30 a.m. eastern time; or 

(C) Such later time as provided in the 

Reserve Banks’ operating circulars. 

(ii) If the paying bank fails to settle for 

or return a cash item in accordance with 

paragraph (b)(2)(i) of this section, it 

shall be subject to any applicable 

overdraft charges. Settlement under 

paragraph (b)(2)(i) of this section 

satisfies the settlement requirements of 

paragraph (b)(1) of this section. 

(3) Paying bank closes voluntarily. (i) 

If a paying bank closes voluntarily so 

that it does not receive a cash item on 

a day that is a banking day for a Reserve 

Bank, and the Reserve Bank makes a 

cash item available to the paying bank 

on that day, the paying bank shall 

either— 

(A) On that day, 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 

the next clock hour or clock half-hour 

that is at least one half-hour after it 

ordinarily would have received the 

item, 8:30 a.m. eastern time, or such 

later time as provided in the Reserve 

Banks’ operating circulars; or 

(B) On the next day that is a banking 

day for both the paying bank and the 

Reserve Bank, settle for the item so that 

the proceeds of the settlement are 

available to its administrative Reserve 

Bank by 8:30 a.m. eastern time on that 

day or such later time as provided in the 

Reserve Banks’ operating circulars; and 

compensate the Reserve Bank for the 

value of the float associated with the 

item in accordance with procedures 

provided in the Reserve Bank’s 

operating circular. 

(ii) If a paying bank closes voluntarily 

so that it does not receive a cash item 

on a day that is a banking day for a 

Reserve Bank, and the Reserve Bank 

makes a cash item available to the 

paying bank on that day, the paying 

bank is not considered to have received 

the item until its next banking day, but 

it shall be subject to any applicable 

overdraft charges if it fails to settle for 

or return the item in accordance with 

paragraph (b)(3)(i) of this section. The 

settlement requirements of paragraphs 

(b)(1) and (2) of this section do not 

apply to a paying bank that settles in 

accordance with paragraph (b)(3)(i) of 

this section. 

(4) Reserve Bank closed. (i) If a paying 

bank receives a cash item from a 

Reserve Bank on a banking day that is 

not a banking day for the Reserve Bank, 

the paying bank shall— 

(A) Settle for the item so that the 

proceeds of the settlement are available 

to its administrative Reserve Bank by 

the close of Fedwire on the Reserve 

Bank’s next banking day, or return the 

item by midnight of the day it receives 

the item (if the paying bank fails to 

settle for or return a cash item in 

accordance with this paragraph 

(b)(4)(i)(A), it shall become accountable 

for the amount of the item as of the 

close of its banking day on the day it 

receives the item); and 

(B) Settle for the item so that the 

proceeds of the settlement are available 

to its administrative Reserve Bank by 

8:30 a.m. eastern time on the Reserve 

Bank’s next banking day or such later 


wreier-aviles on DSK5TPTVN1PROD with RULES
72112 Federal Register / Vol. 79, No. 234 / Friday, December 5, 2014 / Rules and Regulations 

1 78 FR 74130 (Dec. 10, 2013). The Board’s PSR 

policy is available at www.federalreserve.gov/

paymentsystems/psr_policy.htm. 

2All times are eastern time unless otherwise 

specified. 

In 2008, the Board requested comment on moving 

the posting time of ACH debit transactions from 

11:00 a.m. to 8:30 a.m. to coincide with the posting 

of ACH credit transactions but decided not to 

pursue the change because of economic conditions 

at the time and the additional costs and liquidity 

pressures that could be placed on some institutions. 

The request for comment and the subsequent notice 

of the Board’s decision not to pursue the proposed 

changes can be found, respectively, at 73 FR 12443 

(Mar. 7, 2008) and 73 FR 79127 (Dec. 24, 2008). 

3Liquidity refers to balances in Federal Reserve 

accounts to make payments. An increase in 

liquidity involves higher account balances, which 

could result in fewer daylight overdrafts. 

4The Board’s four principles for measuring 

daylight overdrafts are as follows: (1) The 

time as provided in the Reserve Bank’s 

operating circular, or return the item by 

midnight of the day it receives the item. 

If the paying bank fails to settle for or 

return a cash item in accordance with 

this paragraph (b)(4)(i)(B), it shall be 

subject to any applicable overdraft 

charges. Settlement under this 

paragraph (b)(4)(i)(B) satisfies the 

settlement requirements of paragraph 

(b)(4)(i)(A) of this section. 

(ii) [Reserved] 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, December 1, 2014. 

Robert deV. Frierson, 

Secretary of the Board. 

[FR Doc. 2014–28516 Filed 12–4–14; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 210 

[Docket No. OP–1472] 

Federal Reserve Policy on Payment 

System Risk; Procedures for 

Measuring Daylight Overdrafts 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Policy statement. 

SUMMARY: The Board of Governors of the 

Federal Reserve System (Board) has 

adopted revisions to part II of the 

Federal Reserve Policy on Payment 

System Risk (PSR policy) related to the 

procedures for measuring balances 

intraday in institutions’ accounts at the 

Federal Reserve Banks (Reserve Banks). 

The changes relate to the Board’s 

procedures for posting debit and credit 

entries to institutions’ Federal Reserve 

accounts for automated clearinghouse 

(ACH) debit transactions and 

commercial check transactions. 

Elsewhere in the Federal Register under 

Docket No. R–1473, the Board has 

adopted related changes to the Board’s 

Regulation J that affect when paying 

banks settle for check transactions 

presented to them by the Reserve Banks. 

Additionally, in this document, the 

Board has adopted a set of principles for 

establishing future posting procedures 

for the Reserve Banks’ same-day ACH 

service. The Board has also adopted a 

change in language of the PSR policy 

intended to clarify the Reserve Banks’ 

administration of the policy for U.S. 

branches and agencies of foreign 

banking organizations. Finally, the 

Board has adopted two technical 

revisions to the posting procedures to 

reflect deposit deadlines already in 

effect for Treasury checks, postal money 

orders, local Federal Reserve Bank 

checks, and savings bond redemptions 

in separately sorted deposits. 

DATES: Effective Dates: The policy 

changes related to the set of principles 

for establishing future posting 

procedures for the Reserve Banks’ sameday ACH service, the Reserve Banks’ 

administration of the policy for U.S. 

branches and agencies of foreign 

banking organizations, and the technical 

revisions to the posting procedures for 

Treasury checks, postal money orders, 

local Federal Reserve Bank checks, and 

savings bond redemptions will take 

effect on December 5, 2014. The policy 

changes to the Board’s procedures for 

posting debit and credit entries to 

institutions’ Federal Reserve accounts 

for ACH debit and commercial check 

transactions will take effect on July 23, 

2015. All items scheduled to settle on 

this date and after will post according 

to the new posting rule procedures for 

these transactions, regardless of date of 

deposit. 

FOR FURTHER INFORMATION CONTACT: 

Susan V. Foley, Senior Associate 

Director (202/452–3596), Jeffrey D. 

Walker, Assistant Director (202/721– 

4559), or Michelle D. Olivier, Senior 

Financial Services Analyst (202/452– 

2404), Division of Reserve Bank 

Operations and Payment Systems, Board 

of Governors of the Federal Reserve 

System; for users of 

Telecommunications Device for the Deaf 

(TDD) only, contact 202/263–4869. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On December 10, 2013, the Board 

requested comment on several changes 

to part II of the PSR policy intended to 

enhance the efficiency of the payment 

system.1 Technology and processing 

improvements have enabled payment 

systems and depository institutions to 

achieve significant efficiencies since the 

Board first established the procedures, 

referred to as posting rules, to measure 

depository institutions’ intraday Federal 

Reserve account balances. The proposed 

changes to these posting rules are 

intended to align them with current 

operations and processing times and to 

strategically position the rules for future 

advancements in the speed of clearing 

and settlement. 

Commercial and Government ACH 

Debit Transactions 

The Board proposed moving the 

posting times for commercial and 

government ACH debit transactions 

processed overnight to 8:30 a.m. from 

11:00 a.m. eastern time (ET) to coincide 

with the posting time for ACH credit 

transactions processed overnight.2

Under the proposal, other types of ACH 

transactions, including same-day ACH 

and certain ACH return items, would 

not be affected and would continue to 

post at 5:00 p.m. 

The Board outlined four potential 

benefits to shifting earlier the posting 

for ACH debit transactions. First, 

posting ACH debit transactions 

according to the proposed posting rules 

would simplify account management by 

allowing institutions to fund the net of 

all ACH activity at a single posting time, 

rather than funding debit and credit 

transactions separately. Second, the 

change would increase liquidity early in 

the day both for institutions that 

originate ACH debit transactions over 

the FedACH network and for those 

institutions that originate ACH debit 

transactions over the Electronic 

Payments Network (EPN), the other 

ACH operator, but have transactions 

delivered to receiving institutions over 

the FedACH network (interoperator 

transactions).3 Third, moving the 

posting time for ACH debit transactions 

to 8:30 a.m. would align the Reserve 

Banks’ FedACH settlement times with 

those of EPN. The Board believes that 

this change would remove any potential 

competitive disparities between the two 

ACH operators and their participants 

arising from the different settlement 

times for ACH debit transactions. 

Fourth, the earlier posting of ACH debit 

transactions would increase the 

efficiency of the ACH network by 

aligning better the settlement of ACH 

debit transactions with their processing. 

Additionally, posting ACH debit 

transfers at 8:30 a.m. would better 

conform to the Board’s principles for 

measuring daylight overdrafts, 

specifically the principle that 

encourages posting times to be as close 

as possible to the delivery of payments 

to the receiving institution.4


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