[Federal Register Volume 89, Number 175 (Tuesday, September 10, 2024)]
[Notices]
[Pages 73415-73418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-20418]


=======================================================================
-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

[Docket No. OP-1838]


Request for Information and Comment on Operational Aspects of 
Federal Reserve Bank Extensions of Discount Window and Intraday Credit

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Request for information and comment.

-----------------------------------------------------------------------

SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
seeks public input on questions related to the operational aspects of 
Federal Reserve Bank (Reserve Bank) extensions of discount window and 
intraday credit. This Request for Information (RFI) offers the 
opportunity for interested individuals and institutions to identify 
ways to enhance the efficiency of Reserve Bank credit operations. This 
RFI does not seek comment on discount window or intraday credit policy 
considerations, such as the eligibility criteria and terms for discount 
window advances and intraday credit.

DATES: Comments must be received by December 9, 2024.

ADDRESSES: You may submit comments, identified by Docket No. OP-1838, 
by any of the following methods:
     Agency website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include docket 
number in the subject line of the message.
     FAX: (202) 452-3819.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551. All public comments will be made available on the 
Board's website at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, and will not be modified to remove 
confidential, contact or any identifiable information. Public comments 
may also be viewed electronically or in paper in Room M-4365A, 2001 C 
St. NW, Washington, DC 20051 between 9:00 a.m. and 5:00 p.m. during 
Federal business weekdays.

FOR FURTHER INFORMATION CONTACT: Lyle Kumasaka, Lead Financial 
Institution Policy Analyst, (202) 452-2382, Division of Monetary 
Affairs; Brajan Kola, Lead Financial Institution Policy Analyst, (202) 
591-6094, Division of Reserve Bank Operations and Payment Systems; 
Benjamin Snodgrass, Senior Counsel, (202) 263-4877 or Corinne Milliken 
Van Ness, Senior Counsel, (202) 641-1605, Legal Division, Board of 
Governors of the Federal Reserve System, 20th and C Streets NW, 
Washington, DC 20551. For users of text telephone systems (TTY) or any 
TTY-based Telecommunications Relay Services, please call 711 from any 
telephone, anywhere in the United States.

SUPPLEMENTARY INFORMATION:

I. Background

    The discount window of the Federal Reserve System (Federal Reserve) 
plays an important role in the effective implementation of monetary 
policy and in supporting the liquidity of the banking system and 
overall financial stability. The discount window allows depository 
institutions and U.S. branches and agencies of foreign banks 
(hereinafter, collectively referred to as

[[Page 73416]]

depository institutions) to borrow from the Reserve Banks after 
executing legal agreements and pledging collateral.\1\ By providing 
ready access to funding, the discount window helps depository 
institutions manage their liquidity risks efficiently and avoid actions 
that would have negative consequences for their customers, such as 
withdrawing credit during times of market stress. Thus, the discount 
window supports the smooth flow of credit to households and 
businesses.\2\
---------------------------------------------------------------------------

    \1\ The Board's Regulation A (12 CFR part 201) sets out which 
depository institutions and U.S. branches and agencies of foreign 
banks are eligible to borrow from a Reserve Bank.
    \2\ See, https://www.federalreserve.gov/monetarypolicy/discountrate.htm.
---------------------------------------------------------------------------

    The twelve Reserve Banks operate the discount window and work 
together to promote consistent and effective discount window operations 
across the Federal Reserve. The Board oversees Reserve Bank discount 
window operations and provides guidance to Reserve Banks on discount 
window policy through the Board's Regulation A (12 CFR part 201).
    In addition to the discount window, Reserve Banks provide intraday 
credit (also known as daylight overdrafts) to depository institutions 
that are eligible for regular access to the discount window and have 
accounts at a Reserve Bank.\3\ Intraday credit supports the safety and 
efficiency of the payments system. Intraday credit, if collateralized, 
draws on the same pool of collateral as the discount window, with the 
same collateral margins and eligibility standards as for the discount 
window. The Federal Reserve Policy on Payment System Risk (PSR policy) 
outlines the methods that Reserve Banks use to mitigate credit risk 
associated with providing intraday credit.\4\
---------------------------------------------------------------------------

    \3\ An extension of intraday credit or a ``daylight overdraft'' 
occurs when an institution's Reserve Bank account is in a negative 
position at any point during the business day.
    \4\ See, https://www.federalreserve.gov/paymentsystems/psr_about.htm.
---------------------------------------------------------------------------

    The Federal Reserve continually assesses and strives to improve the 
operational aspects of discount window and intraday credit. These 
assessments have led, for example, to the recent introduction of 
Discount Window Direct, a secure online portal that can be used to 
request discount window advances. The Federal Reserve routinely engages 
with depository institutions regarding operational aspects of the 
discount window and intraday credit. Formally seeking broad input from 
the public on these issues should help the Federal Reserve further 
improve discount window and intraday credit operations.

II. Reserve Bank Credit Operations

A. Discount Window Operations

    The Reserve Banks extend discount window credit to depository 
institutions by making advances secured by acceptable collateral. In 
order to borrow from the discount window, a depository institution must 
take several steps. First, it must complete, and submit to its lending 
Reserve Bank, the necessary lending agreements and corporate 
resolutions, which are described in the Reserve Banks' Operating 
Circular No. 10 (Lending).\5\ Second, it must pledge collateral that is 
acceptable to the lending Reserve Bank. Finally, once it has submitted 
the necessary legal documents and pledged collateral, it must request 
an advance from its lending Reserve Bank.
---------------------------------------------------------------------------

    \5\ See, https://www.frbservices.org/resources/rules-regulations/operating-circulars.html#10.
---------------------------------------------------------------------------

    Depository institutions may request discount window advances over 
the phone or by using the recently introduced Discount Window Direct 
secure online portal.\6\ A request may be made only by an authorized 
person identified on the depository institution's current official 
authorization list.\7\ A discount window advance is issued with a 
stated maturity date. The lending Reserve Bank will normally credit the 
borrowing institution's (or its correspondent's) account at 7:00 p.m. 
ET, the close of the business day. Reserve Banks may approve earlier 
availability of advance proceeds if requested by the borrowing 
institution. Multi-day advances may be prepaid in whole or in part at 
the borrowing depository institution's option. Repayment of principal 
and accrued interest is charged to the account to which the advance was 
posted.
---------------------------------------------------------------------------

    \6\ See, https://www.frbdiscountwindow.org/Articles/2024/06/24/12/05/DWD_20240624.
    \7\ The relevant documentation is appended to the Reserve Banks' 
Operating Circular No. 10 (Lending).
---------------------------------------------------------------------------

B. Intraday Credit Operations

    The Reserve Banks provide uncollateralized and collateralized 
intraday credit to eligible depository institutions. The Reserve Banks 
mitigate their credit risk through several methods, including by 
offering a financial incentive for institutions to collateralize 
daylight overdrafts, setting limits on daylight overdrafts in 
institutions' Reserve Bank accounts, and requiring collateral in 
certain situations.\8\ Under the PSR policy, each depository 
institution that maintains an account at a Reserve Bank is assigned or 
may establish a limit on the amount of uncollateralized daylight 
overdrafts that the depository institution may incur in its Reserve 
Bank account. This limit is commonly referred to as the ``net debit 
cap.'' In addition, subject to Reserve Bank approval, certain 
institutions may pledge collateral to access daylight overdraft 
capacity above their net debit caps. The combination of the 
uncollateralized capacity from the institution's net debit cap plus the 
additional collateralized capacity is known as the ``maximum daylight 
overdraft capacity'' or ``max cap.''
---------------------------------------------------------------------------

    \8\ The Reserve Banks do not charge a fee on collateralized 
daylight overdrafts.
---------------------------------------------------------------------------

C. Collateral

    Reserve Banks accept a wide range of loans and securities as 
collateral for discount window advances.\9\ Collateral pledged to a 
Reserve Bank also secures any other obligations of the pledging 
depository institution to a Reserve Bank, including intraday credit. 
Collateral is assigned a lendable value deemed appropriate by the 
Reserve Bank.\10\ Lendable value is based on market value (or a market-
value estimate) multiplied by a margin.
---------------------------------------------------------------------------

    \9\ Assets accepted as collateral can be found at https://www.frbdiscountwindow.org/Pages/Collateral/collateral_eligibility. 
Reserve Banks require a perfected, first-priority security interest 
in collateral.
    \10\ The current collateral margins tables can be found at 
https://www.frbdiscountwindow.org/Pages/Collateral/collateral_valuation.
---------------------------------------------------------------------------

    Depository institutions pledge securities to a Reserve Bank by 
transferring them to restricted securities accounts held at approved 
securities depositories, including the Fedwire[supreg] Securities 
Service (FSS) and The Depository Trust Company (DTC).\11\ In the 
absence of unusual concerns about the eligibility or valuation of the 
security, the pledge is generally effected and given lendable value the 
same day, subject to the securities depositories' operating hours.
---------------------------------------------------------------------------

    \11\ Fedwire is a registered service mark of the Reserve Banks. 
A list of marks related to financial services products that are 
offered to financial institutions by the Reserve Banks is available 
at FRBservices.org[supreg].
---------------------------------------------------------------------------

    The Reserve Banks accept multiple loan types as collateral, 
including consumer loans; residential and commercial real estate loans; 
and commercial, industrial, or agricultural loans. Loans are generally 
pledged to Reserve Banks through a ``borrower in custody'' (BIC) 
arrangement, in which a depository institution pledges a portfolio of 
its loans while maintaining possession of the loan documentation on its 
own premises. Loans may also be pledged under a custodial arrangement

[[Page 73417]]

where the loans are maintained on the premises of a custodian.\12\
---------------------------------------------------------------------------

    \12\ Custodians must be approved by the Reserve Bank and are 
required to execute an agreement found in Appendix 5 to the Reserve 
Banks' Operating Circular No. 10 (Lending).
---------------------------------------------------------------------------

    Generally, the process for pledging loans takes longer than the 
process for pledging securities given the additional steps required for 
the Reserve Banks to obtain information on loan collateral. Pledgors 
are generally expected to provide data on individual pledged loans so 
that the Reserve Bank can determine the fair market and lendable value 
of the collateral--except for credit card receivables, which are 
reported in pools. Larger depository institutions (generally those with 
$50 billion or more in total consolidated assets), as well as all U.S. 
branches and agencies of foreign banks, are generally expected to 
provide more data on loan collateral than are other depository 
institutions. For these larger institutions and U.S. branches and 
agencies of foreign banks, the number of required data elements varies 
by type of loan.
    A depository institution works with its lending Reserve Bank to 
ensure that the Reserve Bank has a perfected, first-priority security 
interest in collateral. For example, when a Reserve Bank receives a 
pledge of loans from a depository institution, the Reserve Bank will 
file a financing statement on the pledged loans, conduct a lien search, 
and, if necessary, take steps to protect its security interest against 
the claims of other creditors. In some cases, a Federal Home Loan Bank 
(FHLB) may have a ``blanket lien'' that already encumbers some portion 
of a depository institution's assets. The Reserve Banks and FHLBs 
coordinate to ensure that advances to the same borrower are not secured 
by the same collateral.

III. Public Information on Discount Window and Intraday Credit 
Operations

    Depository institutions and other members of the public can obtain 
guidance on Federal Reserve operational processes from the Reserve 
Banks' Discount Window and Payment System Risk website (https://www.frbdiscountwindow.org). This website provides instructions for 
accessing discount window and intraday credit, as well as contact 
information for Reserve Bank discount window offices. In addition, the 
Board publishes general information about the discount window on its 
website (https://www.federalreserve.gov/monetarypolicy/discountrate.htm).
    To assist depository institutions in implementing the PSR policy, 
the Federal Reserve has prepared two guidance documents: the Overview 
of the Federal Reserve's Payment System Risk Policy on Intraday Credit 
(Overview) and the Guide to the Federal Reserve's Payment System Risk 
Policy on Intraday Credit (Guide).\13\ The Guide contains detailed 
eligibility standards for requesting and maintaining uncollateralized 
intraday credit capacity.
---------------------------------------------------------------------------

    \13\ The Overview and the Guide are available at https://www.federalreserve.gov/paymentsystems/psr_relpolicies.htm.
---------------------------------------------------------------------------

IV. Request for Information

    The Federal Reserve continually assesses and strives to improve 
operational aspects of the Reserve Banks' extensions of discount window 
and intraday credit. Responses to this RFI will inform the Federal 
Reserve as it considers further improvements to promote efficiency and 
reduce burden on depository institutions. In addition to reducing 
burden on depository institutions, such improvements could encourage 
institutions to use Federal Reserve credit, increasing the 
effectiveness of the discount window and intraday credit in meeting the 
Federal Reserve's goals.
    This RFI only solicits views on credit-related operational 
practices and not on broader discount window or intraday credit policy 
considerations, such as the terms of lending for discount window 
programs or eligibility standards for intraday credit.
    The Federal Reserve is seeking responses to the following 
questions:
Discount Window Operations
    1. For the following discount window operational processes, what 
operational frictions or inefficiencies exist? Are there any specific 
actions that could be taken by the Federal Reserve to address those 
issues?
    a. Submitting legal documents to a Reserve Bank.
    b. Pledging or withdrawing securities as collateral.
    c. Pledging or withdrawing loans as collateral.
    d. Requesting discount window advances and receiving proceeds.
    e. Repaying discount window advances before their full maturity.
    f. Using the Discount Window Direct online portal.
    2. Are there operational frictions or inefficiencies in the 
processes mentioned above that are particularly acute or pressing for 
FHLB members? What specific improvements could be made with respect to 
depository institutions that are members of an FHLB?
    3. Are there operational frictions or inefficiencies in the 
processes mentioned above that are particularly acute or pressing for 
smaller depository institutions or depository institutions that use 
correspondents to interact with the Federal Reserve? What specific 
improvements could be made with respect to these institutions?
Intraday Credit Operations
    4. Are there operational or communications-related frictions 
associated with accessing intraday credit (i.e., daylight overdrafts)? 
For example:
    a. Knowledge about the availability of intraday credit.
    b. Timing of credits and debits impacting the account balance, 
including discount window loans and repayments.
    c. Processes for establishing an uncollateralized intraday credit 
limit or ``net debit cap.''
    d. Voluntary collateralization of daylight overdrafts.
    e. Processes for requesting additional collateralized intraday 
credit capacity or a ``max cap.''
    f. Reporting of intraday credit usage and/or fees.
    g. Expectation to effectively manage accounts to avoid breaches of 
intraday credit limits.
    h. Expectation to avoid overnight overdrafts.
    5. Are there intraday credit frictions and issues in the items 
mentioned above that are particularly acute or pressing for smaller 
depository institutions?

Information on Discount Window and Intraday Credit Operations

    6. Are there improvements that could be made to Federal Reserve 
communications practices about discount window and intraday credit 
operations? For example:
    a. Provision of operational information and guidance to depository 
institutions via the Reserve Banks' discount window and payment system 
risk website (https://www.frbdiscountwindow.org).
    b. Provision of operational information and guidance to depository 
institutions on a bilateral basis from an institution's lending Reserve 
Bank.
    c. Provision of information to the general public via the Board's 
website (https://www.federalreserve.gov/monetarypolicy/discountrate.htm; https://www.federalreserve.gov/paymentsystems/psr_about.htm).

Other

    7. Are there other changes that the Federal Reserve could make to 
improve

[[Page 73418]]

the operational efficiency of the discount window and intraday credit?
    8. What operational aspects of accessing Federal Reserve discount 
window and intraday credit programs are most costly or burdensome for 
depository institutions, both in terms of direct expenses and staff 
hours?

    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2024-20418 Filed 9-9-24; 8:45 am]
BILLING CODE 6210-01-P