When thinking about RTGS in the United States, one generally focuses on Fedwire. Fedwire has existed from the earliest days of the Federal Reserve System. What I will do, in keeping with the title of this session, is to comment on its future direction as I go along. I will also focus on wire transfer of funds and not transfers of book-entry securities against payment over Fedwire, which also are settled on a RTGS basis. I would like to do that using a truncated risk-management analysis of the Fedwire transfer of funds operation and look at changes made to reduce or better manage risk over that system.
Credit risk is the risk resulting from the financial failure of another person.
There is virtually no credit risk borne by a Fedwire participant. Most banks, it not all, are comfortable having a balance in their account on the books of a Reserve Bank. Because Fedwire payments are virtually finally settled as the payments message passes through the Reserve Bank, the Reserve Bank bears the risk that the originating bank will be unable to provide value for the payment made on its behalf. To monitor this risk, the Reserve Banks have implemented a form of real-time accounting. Debits and credits for various transactions are posted to banks' accounts in accordance with rules established for that purpose.