[Federal Register Volume 60, Number 1 (Tuesday, January 3, 1995)]
[Notices]
[Pages 110-111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31979]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
[Docket No. R-0778]
Federal Reserve Bank Services
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: In February 1994, the Board approved the expansion of the
Fedwire on-line funds transfer service operating hours to 18 hours a
day, from 12:30 a.m. to 6:30 p.m. Eastern Time (ET), beginning in early
1997. Currently, the Fedwire funds transfer service operates 10 hours a
day, from 8:30 a.m. ET to 6:30 p.m. ET. The Board has delayed the
implementation of the expanded Fedwire on-line funds transfer operating
hours until fourth quarter 1997 to provide banks that intend to
participate during the expanded hours an opportunity to first complete
their conversion to the new Fedwire format. The Board believes a modest
delay in the implementation of the earlier Fedwire opening time will be
sufficient to address industry concerns regarding the interdependencies
between the two Fedwire initiatives, while not deferring for a
significant period of time the potential changes in payments and
settlement practices that can contribute to reductions in Herstatt
risk. A specific implementation date will be announced one year in
advance of the effective date.
FOR FURTHER INFORMATION CONTACT: Louise L. Roseman, Associate Director
(202/452-2789), Gayle Brett, Manager (202/452-2934), or Lisa Hoskins,
Project Leader (202/452-3437), Division of Reserve Bank Operations and
Payment Systems. For the hearing impaired only, Telecommunication
Device for the Deaf (TDD), Dorothea Thompson (202/452-3544).
SUPPLEMENTARY INFORMATON: In February 1994, the Board announced
approval of the expansion of the Fedwire on-line funds transfer service
operating hours to 18 hours a day, from 12:30 a.m. to 6:30 p.m. Eastern
Time (ET), beginning in early 1997.1 (59 FR 8981, February 24,
1994) In its announcement, the Board identified two public policy
objectives for the Fedwire funds transfer service. Fedwire should:
\1\Currently, the Fedwire funds transfer service operates 10
hours a day, from 8:30 a.m. ET to 6:30 p.m. ET.
---------------------------------------------------------------------------
(1) Provide a means that can be used to enhance the safety and
efficiency of the U.S. dollar settlement arrangements, including
arrangements that rely on interbank settlement of netted positions,
particularly during periods of financial stress, and
(2) Respond to the needs of both existing and emerging financial
markets, including overseas markets, which depend on the U.S. dollar
and are increasingly reliant on state-of-the-art technology.
With these public policy objectives in mind and after extensive
contact with representatives of commercial banks, brokers and dealers,
clearing organizations, and corporate treasurers, the Board concluded
that expanded Fedwire funds transfer operating hours could be a useful
component of private-sector initiatives to reduce settlement risk in
the foreign exchange markets. In addition, the Board concluded that
expanded Fedwire funds transfer operating hours will eliminate an
operational barrier to potentially important innovation in privately-
provided payment and settlement services.
At the same time, the Board recognized the need stressed by the
industry representatives that a long lead-time would be necessary for
banks to make the necessary investments in new technology and the
modifications to operating procedures in preparation for participating
in expanded funds transfer operating hours. In particular, many banks
would need to make significant automation and procedural changes in
their end-of-day processing, which includes many batch operations, in
order to obtain opening-of-business customer account balances earlier
than they do today. Thus, when announcing [[Page 111]] the earlier
Fedwire opening time, the Board indicated that the expansion would not
take place until early 1997 and that a specific implementation date
would be announced one year prior to the expansion.
Subsequent to the Board's February announcement, the Board received
comments on a proposal to expand the Fedwire funds transfer format. (58
FR 33366, December 1, 1993) The Board had proposed completing the
implementation of the new format by year-end 1996; many commenters
requested a longer period of time to complete this conversion. In
addition, commenters expressed the desire to complete the conversion to
the expanded format prior to the expansion of Fedwire funds transfer
operating hours. These commenters indicated that it would be burdensome
for them to pursue both initiatives simultaneously as many of the same
automation and human resources would be necessary to accomplish both
initiatives.
Board and Reserve Bank staff recently discussed with
representatives of money center and regional banks the
interdependencies between these two Fedwire initiatives. In these
discussions, bankers indicated that, despite the Board's statement that
participation in expanded Fedwire funds transfer operating hours will
be voluntary, they believe that competitive pressures will mandate
their participation. Some of these bankers also indicated that they
needed to modify their systems to provide a means to send during the
early hours only those funds transfers destined for banks that are open
during the early hours. In addition, some bankers indicated that they
intend to provide a mechanism by which their customers can designate
which of their funds transfers should be sent during the early hours.
Some of the bankers indicated that they did not want to make changes to
the customer interface to their current Fedwire software, when soon
thereafter they would have to change that software (and the customer
interface) to accommodate the new Fedwire format. These bankers
indicated that the implementation of expanded operating hours should
follow the new format after a lag; suggested time frames were as short
as three months and as long as twelve months.
Separately, bankers and representatives from clearing organizations
have indicated in a variety of forums that steps should be taken to
reduce Herstatt risk and that such steps can take advantage of expanded
Fedwire funds transfer operating hours. For example, the New York
Clearing House recently announced that it is evaluating a possible
earlier opening time and multiple settlements for the Clearing House
Interbank Payments Systems (CHIPS). In addition, Multinet International
has indicated that it plans to take advantage of earlier Fedwire
operating hours to settle dollar obligations arising from its proposed
netting service.
The Board has considered whether to delay somewhat the
implementation of expanded funds transfer operating hours. Such a delay
could reduce the operational burden on banks in complying with this
initiative in light of the new funds transfer format, but also would
withhold the potential benefits from banks and clearing organizations
that intend to use the expanded funds transfer operating hours in
developing solutions to reduce Herstatt risk.
The Board believes that the majority of banks that may intend to
participate in the early funds transfer operating hours will be the
same banks that are likely to complete their conversions to the new
Fedwire funds transfer format early in the implementation schedule. The
Board has approved an expanded Fedwire format and an implementation
schedule for conversion to the new format. (See notice elsewhere in
today's Federal Register.) Based on the approved implementation
schedule for the new format, the earliest that banks can complete their
format conversion is June 23, 1997.2 It is possible that some
banks wanting to participate in expanded operating hours likely would
not be converted totally to the new format until later in 1997.
\2\The implementation plan for the new Fedwire format consists
of a two-phased implementation wherein participants begin receiving
Fedwire transfers in the new format before they begin sending new-
format transfers. The implementation plan also will allow a subset
of institutions to implement both the receive and send capabilities
on a same-day basis on the first day of the second phase.
---------------------------------------------------------------------------
The Board believes that a modest delay in the implementation of the
earlier Fedwire opening time would be sufficient to address concerns
raised by the larger banks regarding the potential operational burden
of implementing these two initiatives concurrently, while not deferring
for a significant period of time the potential changes in payments and
settlement practices that can contribute to reductions in Herstatt
risk. Therefore, the implementation of the expanded Fedwire funds
transfer operating hours will be delayed until fourth quarter 1997. A
specific implementation date will be announced approximately one year
in advance of the effective date. A late 1997 implementation of
expanded Fedwire funds transfer operating hours will provide an
approximate four-month lag for those banks that choose to complete
their Fedwire format implementation early in the conversion schedule.
By order of the Board of Governors of the Federal Reserve
System, December 21, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-31979 Filed 12-30-94; 8:45 am]
BILLING CODE 6210-01-P