Frequently Asked Questions


Payment System Risk



Last Updated: July 10, 2015


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  1. General
  2. A daylight overdraft occurs when an institution's Federal Reserve account has a negative balance at any point during the Fedwire operating day. Daylight overdrafts are also referred to as Federal Reserve's intraday credit.
  3. Depository institutions with regular access to the discount window may incur daylight overdrafts. Institutions that have a Federal Reserve account but do not have regular access to the Discount Window are not permitted to incur daylight overdrafts. The Reserve Bank may also limit access to intraday credit for other institutions that present increased risks, such as institutions in weak financial condition or institutions incurring overdrafts in violation of the PSR policy.
  4. Each institution that maintains a Federal Reserve account is assigned or may establish a net debit cap ("cap"), which limits the amount of daylight overdrafts that the institution may incur in its Federal Reserve account. An institution's cap category and its capital measure determine the dollar amount of its net debit cap.
  5. A cap breach is a negative end-of-minute balance in an institution's Federal Reserve account that exceeds its net debit cap or its "max cap" (single-day cap plus additional capacity).
  6. The Federal Reserve uses a schedule of posting rules, identified in the PSR policy, to determine whether a daylight overdraft has occurred in an institution’s account. The daylight overdraft posting rules define the time of day that debits and credits for transactions processed by the Federal Reserve will post to an institution's account. The Federal Reserve measures an institution’s daylight overdraft activity, monitors its compliance with the PSR policy, and calculates daylight overdraft charges on an ex-post basis
  7. The Federal Reserve expects institutions that maintain Federal Reserve accounts to monitor their account balances on an intraday basis in order to comply with the PSR policy. Institutions should be aware of the payments made from their accounts each day and know how those payments are funded. Institutions are expected to use their own systems and procedures, as well as the Federal Reserve's systems, to monitor their Federal Reserve account balance and payment activity. Institutions are also expected to maintain procedures to manage their accounts in contingency situations and during periods of service disruptions. Daylight overdrafts that result in overnight overdrafts are strongly discouraged and subject to an overnight overdraft penalty fee.
  8. The following revisions to the PSR policy, effective July 23, 2015, are designed to enhance the efficiency of the payment system by aligning the PSR posting rules more closely with current operations for automated clearing house (ACH) debit transactions and commercial check transactions and strategically position the rules for future advancements in the speed of clearing and settlement. The Federal Reserve Board amended the PSR policy to:

    • Move the posting time for ACH debit transactions to 8:30 AM ET from 11:00 AM ET to align with the posting of ACH credit transactions.
    • Establish new posting times for commercial check credits and debits at 8:30 AM ET, 1:00 PM ET, and 5:30 PM ET.
  9. Under the PSR policy, collateralization of daylight overdrafts by healthy depository institutions is voluntary to avoid disrupting the operation of the payment system and creating a burden for a large number of small users of daylight overdrafts. Eligible institutions that collateralize daylight overdrafts receive a zero fee for those overdrafts.
  10. Collateral
  11. Institutions with regular access to the discount window can incur daylight overdrafts and may pledge collateral voluntarily to reduce or offset daylight overdraft fees. Any collateral that an institution has pledged to its Reserve Bank that is not securing an extension of credit, such as a discount window loan, will automatically be applied to offset the institution's daylight overdraft fees.

    Collateral may also be used to support a max cap or to meet a Reserve Bank's collateral requirement that may be applicable, for example, for institutions in weak financial condition. Collateral pledged to support a max cap or to support a collateral requirement will be applied to offset an institution's daylight overdraft fees.

  12. All collateral pledged for discount window and PSR purposes resides in one account, called the FR collateral account. Collateral pledged to the Reserve Bank for Treasury purposes (TT&L collateral) is pledged into a different collateral account and is not applied to an institution's daylight overdraft fee calculation.
  13. Any collateral eligible to be pledged at the discount window is eligible for PSR purposes as well. A listing of the most commonly pledged asset types can be found by clicking on the Collateral Margins Table on this site. Additionally, in-transit collateral may be pledged for PSR purposes at Reserve Bank discretion. All collateral must be acceptable to an institution's Reserve Bank.
  14. Collateral margins are the same for collateral pledged for either PSR or discount window purposes. See the Collateral Margins Table on this site for more information.
  15. Collateral already pledged for discount window purposes, which is not securing an outstanding discount window loan, will be automatically applied for daylight overdrafts purposes.
  16. The requirements for pledging collateral under the PSR policy are the same as those for pledging to the discount window. Institutions interested in pledging collateral for discount window or PSR purposes must complete certain legal documents (authorizing resolutions and agreements) with their Reserve Bank, specifically, Operating Circular No. 10 documents.
  17. Institutions can access near-real-time collateral information in the Federal Reserve's Account Management Information (AMI) system. Through AMI's collateral service, institutions can view and download aggregate and CUSIP-level collateral activity information intra-day, and download ex-post reports. This collateral information is provided in addition to the periodic statement(s) of collateral holdings that institutions currently receive from the Collateral Management System (CMS) via email.

    Additional information on AMI is available under Account Services on the Federal Reserve Bank Services Website. Additional information on accessing collateral information through AMI is available in the Account Management Guide [PDF; 3.4GB].

    If collateral information is unavailable in AMI intra-day, institutions should contact their local Reserve Bank for collateral balances.
  18. Net Debit Caps
  19. A net debit cap applies to the total collateralized and uncollateralized daylight overdrafts. The Federal Reserve believes that it is prudent to have limits on intraday credit even when the credit is fully collateralized. Limits or caps complement the use of collateral in risk mitigation.
  20. An institution's net debit cap is calculated as its cap multiple times its capital measure:

    Net debit cap = cap multiple x capital measure.

    Because an institution's net debit cap is a function of its capital measure, the dollar amount of the cap will vary over time as the institution's capital measure changes. An institution's cap category is normally set for one year, but the Reserve Bank will monitor the condition of all accountholders throughout the year to ensure that they remain eligible for their respective caps.

  21. Collateralized intraday credit does not increase an institution's net debit cap; it simply offsets the institution's fees associated with an extension of intraday credit. An institution that requires capacity that exceeds its net debit cap must apply for maximum daylight overdraft capacity (max cap). For more information on applying for a max cap, institutions should contact their local Reserve Bank.
  22. Maximum daylight overdraft capacity or "max cap" is an institution's net debit cap plus its Federal Reserve approved collateralized capacity. Only institutions with self-assessed net debit caps are eligible to request a max cap from the Federal Reserve.
  23. The streamlined max cap procedure offers additional capacity more efficiently to eligible FBOs. Eligible institutions include FBOs that are FHCs or SOSA 1-rated institutions and have a self-assessed net debit cap. The streamlined procedure allows eligible FBOs to request from the Reserve Banks additional capacity of up to 100 percent of worldwide capital times the self-assessed cap multiple without documenting a specific business need for additional capacity or providing a board-of-directors resolution authorizing the request for a max cap.
  24. The policy allows de minimis, self-assessed, and max cap institutions to fully collateralize up to two cap breaches in two consecutive reserve-maintenance periods without violating the policy.
  25. Throughout the Fedwire® day, institutions can access the Account Management Information (AMI) system to monitor their daylight overdraft positions and collateral information in real time. Ex-post, institutions can access daylight overdraft and charge reports, including collateral information, via AMI and FedLine Direct®.
  26. Pricing/Fees
  27. The Reserve Banks calculate and assess daylight overdraft charges on the basis of a two-week maintenance period as follows:

    • A zero fee applies to collateralized daylight overdrafts for institutions with regular access to the discount window,
    • A 50 basis point fee applies to uncollateralized daylight overdrafts for institutions with regular access to the discount window,
    • A 150 basis point penalty fee is assessed for daylight overdrafts incurred by institutions that do not have regular access to the discount window and therefore     are subject to a penalty fee, and
    • A fee waiver of $150 is subtracted from the gross fees of institutions with regular access to the discount window.
  28. The Federal Reserve determines the extent to which a daylight overdraft is collateralized by comparing an institution's end-of-minute daylight overdraft balance to the value of FR collateral pledged by the institution (less outstanding extensions of credit) at that minute. If the value of the institution's FR collateral meets or exceeds its daylight overdraft for a given minute, then that minute of overdraft is considered fully collateralized and will receive a zero price. If the daylight overdraft balance exceeds the collateral available for daylight overdraft purposes, the portion of the daylight overdraft that is uncollateralized is included in the calculation of the institution's fees.

    In calculating an institution's fees, the value of collateral in the FR account (less outstanding extensions of credit) is subtracted from all negative end-of-minute account balances to determine the institution's uncollateralized negative end-of-minute balances. The uncollateralized negative end-of-minute account balances are summed and divided by the number of minutes in the Fedwire funds transfer operating day to arrive at the daily average uncollateralized daylight overdraft, which is assessed a 50 basis point (annual rate) fee. Daily daylight overdraft fees for each reserve maintenance period are added together and reduced by the amount of the fee waiver ($150).

    For more information on how the Federal Reserve calculates daylight overdraft fees, see the Overview of the Federal Reserve's Payment System Risk Policy  [PDF; 184K] or the Guide to the Federal Reserve's Payment System Risk Policy [PDF; 603K].
  29. Institutions without regular access to the discount window are not eligible for daylight overdrafts, a zero price for collateralized daylight overdrafts, or the fee waiver. Such institutions are charged a penalty fee for any daylight overdrafts they do incur.
  30. The fee waiver aims to reduce the burden of the PSR policy on institutions that use small amounts of intraday credit. The amount of the fee waiver is $150 per institution, per reserve maintenance period. Institutions that incur fees under $150 in a reserve maintenance period are not assessed any fees. Institutions that incur fees over $150 in a reserve-maintenance-period have their gross fees reduced by $150. The fee waiver is not available for institutions without regular access to the discount window. The waiver does not result in refunds or credits to an institution.
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