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.
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.