[Federal Register Volume 85, Number 82 (Tuesday, April 28, 2020)]
[Rules and Regulations]
[Pages 23448-23449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09052]
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FEDERAL RESERVE SYSTEM
12 CFR Chapter II
[Docket No. OP-1716]
Temporary Actions To Support the Flow of Credit to Households and
Businesses by Encouraging Use of Intraday Credit
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Policy statement.
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SUMMARY: Due to the extraordinary disruptions from the coronavirus
disease 2019 (COVID-19), the Board of Governors of the Federal Reserve
System (Board) is announcing temporary actions aimed at encouraging
healthy depository institutions to utilize intraday credit extended by
Federal Reserve Banks (Reserve Banks). The Board recognizes that the
Federal Reserve has an important role in providing intraday balances
and credit to foster the smooth operation of the payment system. These
temporary actions are intended to support the provision of liquidity to
households and businesses and the general smooth functioning of payment
systems.
DATES: These temporary actions are effective on April 24, 2020, and
will expire on September 30, 2020.
FOR FURTHER INFORMATION CONTACT: Jason Hinkle, Assistant Director (202-
912-7805), Brajan Kola, Senior Financial Institution Policy Analyst
(202-736-5683) Division of Reserve Bank Operations and Payment Systems
or Evan Winerman, Senior Counsel (202-872-7578), Legal Division, Board
of Governors of the Federal Reserve System. For users of
Telecommunications Device for the Deaf (TDD) only, please contact 202-
263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
Part II of the Federal Reserve Policy on Payment System Risk (PSR
policy) governs the provision of intraday credit (also known as
daylight overdrafts) to depository institutions (institutions) with
accounts at the Reserve Banks.\1\ The Board recognizes that the Federal
Reserve has an important role in providing intraday balances and credit
to foster the smooth operation of the payment system. Under the PSR
policy, an institution that is ``financially healthy'' and has regular
access to the discount window is eligible for intraday credit.\2\ The
PSR policy establishes limits, or ``net debit caps,'' on the value of
an institution's uncollateralized daylight overdrafts.\3\ The PSR
policy also allows an institution with a self-assessed net debit cap to
request, at Reserve Bank discretion, collateralized capacity in
addition to its uncollateralized net debit cap under the ``maximum
daylight overdraft capacity'' (max cap) program.\4\
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\1\ See https://www.federalreserve.gov/paymentsystems/psr_about.htm.
\2\ See section II.D.1 of the PSR policy.
\3\ Id.
\4\ See section II.E of the PSR policy.
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The spread of COVID-19 has disrupted economic activity in the
United States and in many other countries. In addition, financial
markets have experienced significant volatility. In light of these
developments, institutions may face unanticipated intraday liquidity
constraints and demands on collateral pledged to the Reserve Banks. In
response, the Board has announced a series of actions to support the
flow of credit to households and businesses to mitigate the disruptions
from COVID-19.\5\ As part of this response, the Board has encouraged
``institutions to utilize intraday credit extended by Reserve Banks, on
both a collateralized and uncollateralized basis, to support the
provision of liquidity to households and businesses and the general
smooth functioning of payment systems.'' \6\
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\5\ For a summary of actions, see https://www.federalreserve.gov/covid-19.htm.
\6\ See Federal Reserve Actions to Support the Flow of Credit to
Households and Businesses press release, March 15, 2020, available
at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm.
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As described below, the Board is taking temporary actions that will
improve institutions' access to Reserve Bank intraday credit, provide
institutions a ready and flexible source of intraday funds to
efficiently manage their liquidity risk, and help institutions focus on
other activities that support lending to households and businesses.
[[Page 23449]]
The temporary actions can be deployed relatively quickly and will
complement other Board initiatives to encourage use of Reserve Bank
credit.
II. Discussion of Temporary Actions
A. Suspension of Net Debit Caps and Waiver of Fees
As noted above, the PSR policy provides access to intraday credit
to healthy institutions, subject to net debit caps and fees for
uncollateralized overdrafts. The Board is temporarily lifting net debit
caps and fees for these institutions. For the sake of simplicity and to
ensure immediate effectiveness, institutions that are eligible to
borrow under the Federal Reserve's primary credit program for the
discount window (primary credit institutions) are eligible for these
temporary measures.\7\ As a result, primary credit institutions will
not be expected to manage activity in their Federal Reserve account to
avoid daylight overdrafts in excess of their net debit caps, and
Reserve Banks will not counsel primary credit institutions for daylight
overdrafts that exceed their net debit caps.\8\ Additionally, Reserve
Banks will waive all fees for daylight overdrafts, including
uncollateralized daylight overdrafts, incurred by primary credit
institutions. The Reserve Banks will apply these temporary actions
automatically.\9\
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\7\ The Reserve Banks' primary credit program is available to
institutions that are in generally sound financial condition. 12 CFR
201.4(a).
\8\ Except for several exceptions outlined in the PSR policy,
the Federal Reserve considers all cap breaches to be violations of
the PSR policy. A policy violation initiates a series of Reserve
Bank counseling actions aimed at deterring an institution from
exceeding its allowed capacity for intraday credit.
\9\ The Reserve Banks generally monitor institutions' compliance
with the PSR policy over each two-week reserve maintenance period.
The temporary actions adopted in this document will apply to the
current two-week reserve maintenance period.
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The Board does not believe that these actions will meaningfully
increase credit risk to Reserve Banks because the provisions will only
apply to financially healthy institutions, and the majority of daylight
overdrafts during the period are likely to be collateralized.\10\
Further, Reserve Banks will continue to monitor an institution's
eligibility for primary credit using financial and supervisory
information in order to manage the risk exposure to Reserve Banks. The
Board expects that primary credit institutions will continue to use
their own systems and procedures, as well as the Federal Reserve's
systems, to monitor their Federal Reserve account balances and payment
activities. Furthermore, primary credit institutions will continue to
be expected to extinguish any daylight overdrafts prior to the close of
the Fedwire operating day.
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\10\ Approximately 95 percent of average daylight overdrafts are
collateralized. See https://www.federalreserve.gov/paymentsystems/psr_data.htm.
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B. Streamlined Max Cap Procedure
The Board is also taking temporary actions to encourage usage of
collateralized intraday credit by institutions that are eligible only
for the Reserve Banks' secondary credit discount window program
(secondary credit institutions).\11\ Although secondary credit
institutions will remain ineligible for uncollateralized net debit
caps, the Board is adopting a streamlined process that will allow
secondary credit institutions to request collateralized capacity from
their Reserve Banks under the max cap program.\12\ The Board is waiving
the requirement that an institution first obtain a self-assessed net
debit cap and a board of directors resolution before it requests a max
cap.
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\11\ Secondary credit is a lending program that is available to
depository institutions that are not eligible for primary credit.
See generally 12 CFR 201.4(b). Institutions covered under section
II.F of the PSR policy (Special Situations) will not be eligible for
collateralized intraday credit.
\12\ See Section II.E of the PSR policy. All collateral must be
acceptable to the administrative Reserve Banks. Collateral
eligibility and margins are the same for PSR policy purposes as for
the discount window. See http://www.frbdiscountwindow.org/ for more
information.
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The Board does not believe that this change will meaningfully
increase credit risk to Reserve Banks because the intraday overdrafts
would be collateralized. In order to manage their risk exposure,
Reserve Banks will continue to monitor an institution's condition using
financial and supervisory information. The Reserve Banks will also
monitor an institution's account balance in real-time, rejecting or
delaying certain transactions that would exceed the secondary credit
institution's max cap.\13\ Like primary credit institutions, secondary
credit institutions will be expected to extinguish any daylight
overdrafts prior to the close of the Fedwire operating day.
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\13\ Pledging less collateral reduces the effective maximum
daylight overdraft capacity level; however, pledging more collateral
will not increase the maximum daylight overdraft capacity above the
approved level.
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C. Termination of Temporary Actions
The temporary actions discussed above will terminate on September
30, 2020 unless the Board communicates otherwise prior to that date.
III. Competitive Impact Analysis
When considering changes to an existing service, the Board conducts
a competitive impact analysis to determine whether there will be a
direct and material adverse effect on the ability of other service
providers to compete effectively with the Federal Reserve in providing
similar services due to differing legal powers or the Federal Reserve's
dominant market position deriving from such legal differences.\14\
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\14\ See The Federal Reserve in the Payments System (issued
1984; revised 1990), Federal Reserve Regulatory Service 9-1558.
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The Board believes that the temporary actions will have no adverse
effect on the ability of other service providers to compete with the
Reserve Banks in providing similar services. While the temporary
relaxation of the PSR policy will provide institutions with additional
intraday credit in their Federal Reserve accounts, institutions may use
this credit to fund payments activity using private sector or Reserve
Bank services, at their discretion.
IV. Paperwork Reduction Act
In accordance with section 3512 of the Paperwork Reduction Act of
1995 (44 U.S.C. 3501-3521) (PRA), the Board may not conduct or sponsor,
and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The Board is suspending the collection
of information under the Annual Daylight Overdraft Capital Report for
U.S. Branches and Agencies of Foreign Banks (FR 2225, OMB Number 7100-
0216) and the Annual Report of Net Debit Cap (FR 2226, OMB Number 7100-
0217). The Board has reviewed these temporary measures pursuant to the
authority delegated by the OMB and has determined that they do not
contain any new collections of information pursuant to the PRA.
By order of the Board of Governors of the Federal Reserve
System, April 23, 2020.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-09052 Filed 4-24-20; 11:15 am]
BILLING CODE 6210-01-P