[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