[Federal Register Volume 59, Number 92 (Friday, May 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11646]


[[Page Unknown]]

[Federal Register: May 13, 1994]


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FEDERAL RESERVE SYSTEM

 

Interpretation of the Payments System Risk Reduction Policy; 
Daylight Overdrafts of Government-Sponsored Enterprises

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interpretation.

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SUMMARY: As part of its payments system risk reduction program, the 
Board is adopting an interpretation of its Policy Statement on Payments 
System Risk. Under the payments system risk reduction program, 
government-sponsored enterprises that maintain accounts at Reserve 
Banks should not incur daylight overdrafts in these accounts and are 
not permitted to adopt a positive daylight overdraft net debit cap. 
Furthermore, the Board interprets the Policy Statement on Payments 
System Risk to include government-sponsored enterprises under the 
policy on daylight overdraft fees. Until October 13, 1994, fees on 
daylight overdrafts in accounts of government-sponsored enterprises 
will be waived. A temporary exemption from daylight overdraft fees is 
granted for daylight overdrafts in principal and interest accounts of 
government-sponsored enterprises. This interpretation supports the 
Board's payments system risk reduction program by providing a 
comprehensive policy towards daylight overdrafts incurred by 
government-sponsored enterprises while at the same time recognizing the 
unique nature of the fiscal agency relationship between the Federal 
Reserve and these entities.

DATES: Effective April 28, 1994.

FOR FURTHER INFORMATION CONTACT: Jeffrey C. Marquardt, Assistant 
Director (202/452-2360), Paul Bettge, Manager (202/452-3174), Division 
of Reserve Bank Operations and Payment Systems; Stephanie Martin, 
Senior Attorney (202/452-3198), Legal Division; for the hearing 
impaired only: Telecommunications Device for the Deaf, Dorothea 
Thompson (202/452-3544).

SUPPLEMENTARY INFORMATION:

Background

    The term ``government-sponsored enterprise'' (GSE) is generally 
used to refer to corporations chartered by Congress to perform certain 
financial market functions deemed to be in the public interest. These 
entities include, but are not limited to, the Federal National Mortgage 
Association (Fannie Mae), the Federal Home Loan Mortgage Corporation 
(Freddie Mac), the Student Loan Marketing Association (Sallie Mae), and 
entities of the Federal Home Loan Bank System and the Farm Credit 
System. These GSEs are owned by private shareholders and their 
obligations are not guaranteed by the U.S. government.
    Congress authorized the Reserve Banks to act as depositaries, 
custodians, and fiscal agents for these entities. Under agreements with 
the GSEs, the Reserve Banks issue and redeem the GSEs' debt and asset-
backed securities over the Fedwire system, in addition to providing 
other payment services generally related to these fiscal agency 
services.
    The Board's payments system risk (PSR) policies and guidelines have 
addressed daylight overdrafts by government-sponsored enterprises that 
maintain accounts with Federal Reserve Banks only in certain limited 
instances. In 1985, the Board determined that Federal Home Loan Banks 
should not be allowed a positive net debit cap and should be 
discouraged from incurring daylight overdrafts in their accounts with 
the Reserve Banks. In June 1986, the Board similarly determined that 
the Farm Credit System Banks should be discouraged from incurring 
overdrafts.
    The Board has never addressed daylight overdrafts of other GSEs, 
including those for which the Reserve Banks act as fiscal agents in 
issuing and redeeming their securities. Further, when the Board 
approved in 1992 the policy of charging fees for daylight overdrafts 
beginning in April 1994, it did not address the question of whether 
GSEs would be subject to the fees. However, the policy did not exclude 
GSEs or any other class of account-holders from the fees.1 In 
addition, in 1994, the Board adopted a penalty fee for daylight 
overdraft incurred by institutions that do not have regular discount 
window access, although GSEs were not included in this penalty fee 
policy.
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    \1\The Board's policy statement on daylight overdraft fees 
states that ``each Reserve Bank will charge a fee for average daily 
daylight overdrafts in Federal Reserve accounts [emphasis added].''
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    The Federal Reserve is not obligated to provide intraday credit to 
the GSEs in the form of daylight overdrafts as part of its fiscal 
agency functions; indeed, the GSEs have generally agreed not to incur 
overdrafts in their accounts. However, many of the GSEs have 
nonetheless incurred daylight overdrafts. The Board believes that, with 
the advent of daylight overdraft fees for depository institutions on 
April 14, 1994, it is particularly important that the GSEs not be 
permitted unlimited free access to intraday Federal Reserve credit. 
Such access would represent a benefit not available to depository 
institutions and could serve to undermine the Board's payment system 
risk reduction program.
    As a result, the Board interprets the Policy Statement on Payments 
System Risk to include GSEs under the policy on daylight overdraft 
fees. In addition, the Board has determined that a capital-based fee 
deductible, as permitted for depository institutions, will not be 
permitted for the GSEs. These entities do not have regular access to 
the discount window and should not be permitted the same access to 
intraday credit as depository institutions. However, because a number 
of these entities have not been formally subject to the PSR policy in 
the past and have not previously been explicitly advised that daylight 
overdraft fees would apply to their accounts, the Board has determined 
that they should be afforded some period within which to make the 
necessary adjustments to their payment systems and practices. As a 
result, daylight overdraft fees for daylight overdrafts in GSEs' 
accounts will be waived until October 13, 1994.
    Furthermore, the Board recognizes that, in large part, the GSEs' 
daylight overdrafts are related to regular payments of principal and 
interest (P&I) on securities that they issue through the Federal 
Reserve. These payments are initiated by the Reserve Banks, and the 
Federal Reserve's daylight overdraft posting rules specify that these 
payments will be made before 9:15 a.m. Eastern time. These posting 
times were primarily designed to grant depository institutions the 
benefit of P&I payments prior to debits being made to their accounts 
from their purchases of new issues of government securities. The GSEs 
typically do not fund debits to their accounts resulting from P&I 
payments until they issue new securities later in the day, causing 
daylight overdrafts in their Federal Reserve accounts.
    To eliminate these daylight overdrafts, the Reserve Banks could 
delay making P&I payments on the GSEs' securities until sufficient 
funds were available in their accounts. This would likely require that 
the P&I payments be made later in the day. Delaying the P&I payments 
might increase the magnitude and duration of daylight overdrafts for 
the depository institutions that receive the corresponding credits.
    For this reason, the Board is permitting a temporary exemption of 
overdrafts incurred in GSEs' P&I accounts (special accounts which are 
used only for the payment of principal and interest), until the 
potential benefits and drawbacks of shifting the timing of P&I payments 
can be analyzed. This analysis will be performed once the initial 
impact of daylight overdraft fees on depository institutions has been 
assessed. In addition, the Board has not ruled out future application 
of the daylight overdraft penalty fee to GSEs' daylight overdrafts.

Interpretation of the Policy Statement on Payments System Risk

    Under the Board's payments system risk reduction program, 
government-sponsored enterprises that maintain accounts at Reserve 
Banks should not incur daylight overdrafts in these accounts and are 
not permitted to adopt a positive daylight overdraft net debit cap. 
Furthermore, the Board interprets the Policy Statement on Payments 
System Risk to include government-sponsored enterprises under the 
policy on daylight overdraft fees. A capital-based fee deductible is 
not permitted for government-sponsored enterprises. However, a 
temporary exemption from daylight overdraft fees is granted for 
daylight overdrafts in principal and interest accounts of government-
sponsored enterprises. Fees on daylight overdrafts in accounts of 
government-sponsored enterprises will be waived until October 13, 1994.

    By order of the Board of Governors of the Federal Reserve 
System, May 9, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-11646 Filed 5-12-94; 8:45 am]
BILLING CODE 6210-01-P