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Board of Governors of the Federal Reserve System
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Federal Reserve Board of Governors

Payment System Risk


The Federal Reserve Policy on Payment System Risk (PSR policy) addresses the risks that payment and settlement activities present to the financial system and to the Federal Reserve Banks. In adopting this policy, the Board’s objectives are to foster the safety and efficiency of payment and settlement systems. The Board expects that financial system participants will reduce and control settlement and systemic risk arising in payment and settlement systems, consistent with the smooth operation of the financial system.

The policy is comprised of two parts: Part I sets forth the Board’s views and risk-management expectations for payment and settlement systems subject to its authority, including those operated by the Reserve Banks. The policy also establishes specific expectations for systemically important systems, including compliance with internationally accepted risk-management standards for payment systems, securities settlement systems, and central counterparties, as adopted in the policy.

On October 28, 2014, the Board issued revisions to part I of the PSR policy. The revisions incorporate the Principles for Financial Market Infrastructures, which were developed jointly by the Committee on Payment and Settlement Systems (now called the Committee on Payments and Market Infrastructures) and the International Organization of Securities Commissions (April 2012). The revised policy also reflects the enhanced supervisory framework for financial market utilities that have been designated as systemically important by the Financial Stability Oversight Council as set forth in Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In particular, certain revisions clarify that designated financial market utilities for which the Board is the Supervisory Agency under Title VIII of the Act are required to comply with Regulation HH and not the risk-management or transparency expectations set out in the policy. The revisions to part I of the PSR policy will be effective on December 31, 2014.

Part II of the policy governs the provision of intraday credit (or daylight overdrafts) in accounts at the Reserve Banks and sets out the general methods used by the Reserve Banks to control their intraday credit exposures. The policy recognizes that some level of intraday credit is appropriate to ensure the smooth functioning of the overall payment system. The policy also seeks to control the risks assumed by the Reserve Banks in providing this intraday credit. The policy helps control the Reserve Banks' exposures through several methods including limits on daylight overdrafts in institutions' Federal Reserve accounts and collateralization in certain situations. The Federal Reserve monitors daylight overdrafts for each institution ex post on a minute-by-minute basis to ensure compliance with the policy.

On March 24, 2011, the Board implemented major revisions to part II of the PSR policy, which include a zero fee for collateralized daylight overdrafts and an increased fee for uncollateralized daylight overdrafts. After implementation, the Board removed the Payment System Risk Policy Fee Calculator, which was designed to assist depository institutions assess the effect of the PSR policy changes on their daylight overdraft fees, from its public website.

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Last update: December 2, 2014