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  • Fed issues RFI to assess discount window operations and access to intraday credit

    Agency Rule-Making & Guidance

    Recently, the Fed issued an RFI and comment period on the operational aspects of the discount window and the provision of intraday credit to banks and credit unions. The discount window allows depository institutions to borrow from Federal Reserve Banks by pledging collateral, helping institutions manage liquidity risks and maintain “the smooth flow of credit to households and businesses.” The Fed introduced tools like the Discount Window Direct online portal to streamline discount window processes and stated that this request for information is part of the Fed’s efforts to remain “effective and efficient as the banking system continues to evolve.”

    The RFI seeks public input on specific operational processes related to the discount window and intraday credit, such as submitting legal documents, pledging or withdrawing securities and loans as collateral, and using the Discount Window Direct portal. The Fed also seeks feedback regarding operational frictions or inefficiencies that FHLBank members, smaller depository institutions, and correspondents may be experiencing when interacting with the Fed. Additionally, the Fed requests information regarding frictions involved in accessing intraday credit, such as the timing of credits and debits, processes for establishing credit limits, and reporting of intraday credit usage. Comments must be received within 90 days following its publication in the Federal Register.

    Agency Rule-Making & Guidance RFI Discount Window Federal Reserve Banks FHLB

  • San Francisco Fed sues PPP lender and principals

    Courts

    On July 11, the San Francisco Fed filed a complaint in the U.S. District Court for the District of Puerto Rico, against a Puerto Rico-based PPP lender and its two principals for allegedly defaulting on the terms of loans. According to the complaint, the lender allegedly failed to comply with the terms of the PPP for some portion of outstanding PPP Loans, totaling approximately $4.3 million. The Fed held a first-priority security interest in certain PPP loans and the collateral that defendant pledged to secure these advances. Following the default, the Fed claimed that defendant fraudulently transferred assets, including the collateral pledged to the Fed, to defendant principals. Such transfers had subsequently left defendant with insufficient capital to meet its obligations to the Fed. As a result, the Fed sought to recover its collateral or other assets to settle the outstanding debts. Specifically, the Fed sought damages for breach of contract, collection of money, conversion, and rescission of fraudulent transfers of various assets for almost $67 million and will request the court to rescind the fraudulent transfers and to grant other declaratory and equitable relief as outlined in the complaint.

    The Fed also filed a motion to intervene in a separate case in which another plaintiff sought to collect against the same PPP collateral.

    Courts Federal Reserve Banks PPP Consumer Finance Breach of Contract

  • Fed releases its Senior Financial Officer Survey results

    Federal Issues

    On December 15, the Federal Reserve Board of Governors released the results from a survey sent in September to senior bank officers asking questions about their strategies and practices for managing reserve balances, called the “Senior Financial Officer Survey” (SFOS). Ninety-three of the 100 surveyed banks responded, including 59 domestic and 34 foreign banking organizations, holding, in the aggregate, three-fourths of the total reserve balances in the banking system.

    The survey results summarized answers in four sections. Part one’s responses were on the bank’s balance sheet strategy. The Fed reported that roughly two-thirds of respondents expect the size of their balance sheet to remain unchanged (plus or minus two percent) over the next six months. For part two of the survey, the Fed gleaned feedback on a bank official’s lowest comfortable level of reserves (LCLOR) – defined as the lowest dollar level comfortably held in reserves by the bank, before taking any action to increase their reserves. When compared to the May 2023 results of the SFOS survey, half of the respondents reported the same LCLOR, or within a ten percent range, to their previous estimate; the remaining respondents were split between increases or decreases larger than the ten percent range. Three-fourths of respondents reported that their bank does not allow reserves to fluctuate below its LCLOR.

    Part three discusses deposit rates and the survey asked about a bank’s cumulative deposit betas from March 2022 to September 2023. Respondents reported an average cumulative retail deposit beta of 35 percent from that period, and estimated retail deposit betas to be 41 percent for the period through March 2024. Lastly, in part four, the Fed’s survey asked about the bank’s views on standing repo facility (SRF). Among the respondent banks meeting the criteria to be an SRF, half reported that they already were an SRF counterparty or expressed interest in becoming one, while the remainder reported no interest in becoming a counterparty on SRF.

    Federal Issues Federal Reserve Banks

  • Fed finalizes updates to policy on payment system risk

    On December 2, the Federal Reserve Board finalized clarifying and technical updates to its Policy on Payment System Risk (PSR). The changes, which are adopted largely as proposed in May 2021 (covered by InfoBytes here), expand depository institutions’ eligibility to request collateralized intraday credit from the Federal Reserve Banks (FRBs), and ease the process for submitting such requests. The final updates also clarify eligibility standards for accessing uncollateralized intraday credit; modify the PSR policy to support the launch of the FedNow instant-payments platform, which is scheduled for mid-year 2023 (covered by InfoBytes here); and simplify and incorporate the related Overnight Overdrafts policy into the PSR policy. Updates related to FedNow and the Overnight Overdrafts policy will take effect once the FRBs start processing live transactions for FedNow. The remaining updates are effective 60 days following publication in the Federal Register.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Federal Reserve Federal Reserve Banks Payments FedNow Risk Management

  • Fed asks for comments on publicizing FRB master accountholders

    On November 4, the Federal Reserve Board issued a notice and request for comment seeking feedback on proposed amendments to its Guidelines for Evaluating Account and Services Requests. Specifically, the proposed amendments would require the Federal Reserve Banks to publish a periodic list of depository institutions that have access to Reserve Bank accounts (often known as “master accounts”) and payment services. In August, the Fed adopted final guidance establishing “a transparent, risk-based, and consistent set of factors for Reserve Banks to use in reviewing requests to access these accounts and payment services.” Recognizing that the longstanding practice of both the Fed and the Reserve Banks “has been to not disclose account-related information to the general public on the basis that such information is considered confidential business information,” the Fed said it is considering “the potential benefits of expanding the disclosure of the names of institutions that have access to accounts and services” following comments received from stakeholders that called for greater public disclosure of account-related information. Comments are due 60 days after publication in the Federal Register.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Federal Reserve Banks

  • FRBs to adopt new Fedwire format in 2025

    On October 24, the Federal Reserve Board published a notice in the Federal Register announcing that the International Organization for Standardization’s (ISO) 20022 message format for the Fedwire Funds Service will be adopted on a single day, March 10, 2025. The Fedwire Funds Service is a real-time gross settlement system owned and operated by the Federal Reserve Banks that enables businesses and financial institutions to quickly and securely transfer funds using either balances held at the Reserve Banks or intraday credit provided by the Reserve Banks. A single-day implementation strategy is preferable to a three-phased implementation approach, the Fed said, explaining it is both simpler and more efficient and is likely to reduce users’ overall costs related to software development, testing, and training. The Fed also announced a revised testing strategy and backout strategy, as well as other details concerning ISO 20022’s implementation.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Federal Reserve Payments Payment Systems Federal Reserve Banks

  • Special Alert: New Fed guidelines clarify, but do not transform, master account and payment services access

    The Federal Reserve Board recently issued final guidelines for the Reserve Banks to use in reviewing requests from a range of financial services providers for access to Federal Reserve master accounts and payment services. Master account and Federal Reserve services allow institutions to transfer money to other master accountholders directly and hold funds in the Federal Reserve System, while others must go through third parties — which can add cost, delay, and further complication to transactions.

    The final guidelines are substantially similar to those proposed in 2021 and a supplement issued earlier this year. They make the application process more transparent by describing the risk factors that a Reserve Bank should take into consideration and by applying a three-tier approach regarding the intensity of a Reserve Bank’s review. However, the guidelines do not broaden the categories of entities that are eligible to apply in the first place, do not establish application processing timelines, and do not provide a clear path forward for entities that lack federal bank supervision, including novel charter types.

    Bank Regulatory Federal Issues Federal Reserve Fintech Federal Reserve Banks Payments Payment Systems Special Alerts

  • Fed to implement new Fedwire message format in March 2025

    On June 27, the Federal Reserve Board announced the final timeline and implementation details for the adoption of the International Organization for Standardization’s (ISO) 20022 message format for its Fedwire Funds Service—a real-time gross settlement system owned and operated by the Federal Reserve Banks that enables businesses and financial institutions to quickly and securely transfer funds. (See notice here.) The final details are “broadly similar” to the Fed’s proposal issued last October (covered by InfoBytes here). The Fed confirmed that ISO 20022 will be adopted on a single day as previously proposed instead of in three separate phases. Additionally, the Fed extended the implementation timeframe from a target date of November 2023 to March 10, 2025, based on comments received in response to the initial proposal. The Fed also provided information concerning its revised testing strategy and backout strategy, as well as other details concerning the implementation of the new message format.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Federal Reserve Payments Payment Systems Federal Reserve Banks

  • Fed reshaping “novel institutions” guidelines

    On March 1, the Federal Reserve Board announced that it is soliciting comments on a supplement to a previous proposal intended to ensure that the Fed’s banks utilize a transparent and consistent set of factors when reviewing requests to access Federal Reserve Bank accounts and payment services. The framework, which builds on a proposal from May 2021 (covered by InfoBytes here), would establish a three tier system. Tier 1 would consist of eligible institutions that are federally-insured, and would be “subject to a less intensive and more streamlined review.” Tier 2 would consist of certain eligible institutions or holding companies that are not federally-insured but subject to prudential supervision, and would generally receive an “intermediate” level of review. Tier 3 would consist of eligible institutions that are “not federally insured and not subject to prudential supervision by a federal banking agency at the institution or holding company level,” and, given their potential higher risk, “would be subject to the strictest level of review.” Comments close 45 days after publication in the Federal Register.

    Bank Regulatory Agency Rule-Making & Guidance Federal Reserve Federal Reserve Banks Federal Register Payments Fintech

  • Fed to adopt Fedwire message format, asks for comments on expedited adoption

    Agency Rule-Making & Guidance

    On October 4, the Federal Reserve Board announced that it will adopt the International Organization for Standardization’s (ISO) 20022 message format for its Fedwire Funds Service—a real-time gross settlement system owned and operated by the Federal Reserve Banks that enables businesses and financial institutions to quickly and securely transfer funds. This change will enable “enhanced efficiency of both domestic and cross-border payments, and a richer set of payment data that may help banks and other entities comply with sanctions and anti-money laundering requirements,” the Fed stated. Additionally, the Fed requested public comments on a revised plan (targeted for no earlier than November 2023) to implement the ISO 20022 message format on a single day rather than in three separate phases, as originally proposed. According to the Fed, the adoption of ISO 20022 is part of the agency’s initiative to enhance its payment services. Comments must be received 90 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Reserve Federal Issues Payments Payment Systems Depository Institution Federal Reserve Banks Bank Regulatory

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