Notice2024-20418
Request for Information and Comment on Operational Aspects of Federal Reserve Bank Extensions of Discount Window and Intraday Credit
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 10, 2024
Issuing agencies
Federal Reserve System
Abstract
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.
Full Text
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<title>Federal Register, Volume 89 Issue 175 (Tuesday, September 10, 2024)</title>
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[Federal Register Volume 89, Number 175 (Tuesday, September 10, 2024)]
[Notices]
[Pages 73415-73418]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-20418]
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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.
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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:
<bullet> Agency website: <a href="http://www.federalreserve.gov">http://www.federalreserve.gov</a>. Follow the
instructions for submitting comments at <a href="http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm">http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm</a>.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#2d5f484a5e034e4240404843595e6d4b4849485f4c415f485e485f5b48034a425b"><span class="__cf_email__" data-cfemail="6b190e0c1845080406060e051f182b0d0e0f0e190a07190e180e191d0e450c041d">[email protected]</span></a>. Include docket
number in the subject line of the message.
<bullet> FAX: (202) 452-3819.
<bullet> 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 <a href="http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm">http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm</a> 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\
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\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, <a href="https://www.federalreserve.gov/monetarypolicy/discountrate.htm">https://www.federalreserve.gov/monetarypolicy/discountrate.htm</a>.
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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\
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\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, <a href="https://www.federalreserve.gov/paymentsystems/psr_about.htm">https://www.federalreserve.gov/paymentsystems/psr_about.htm</a>.
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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.
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\5\ See, <a href="https://www.frbservices.org/resources/rules-regulations/operating-circulars.html#10">https://www.frbservices.org/resources/rules-regulations/operating-circulars.html#10</a>.
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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.
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\6\ See, <a href="https://www.frbdiscountwindow.org/Articles/2024/06/24/12/05/DWD_20240624">https://www.frbdiscountwindow.org/Articles/2024/06/24/12/05/DWD_20240624</a>.
\7\ The relevant documentation is appended to the Reserve Banks'
Operating Circular No. 10 (Lending).
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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.''
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\8\ The Reserve Banks do not charge a fee on collateralized
daylight overdrafts.
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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.
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\9\ Assets accepted as collateral can be found at <a href="https://www.frbdiscountwindow.org/Pages/Collateral/collateral_eligibility">https://www.frbdiscountwindow.org/Pages/Collateral/collateral_eligibility</a>.
Reserve Banks require a perfected, first-priority security interest
in collateral.
\10\ The current collateral margins tables can be found at
<a href="https://www.frbdiscountwindow.org/Pages/Collateral/collateral_valuation">https://www.frbdiscountwindow.org/Pages/Collateral/collateral_valuation</a>.
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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.
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\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 <a href="http://FRBservices.org">FRBservices.org</a>[supreg].
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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\
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\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).
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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 (<a href="https://www.frbdiscountwindow.org">https://www.frbdiscountwindow.org</a>). 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 (<a href="https://www.federalreserve.gov/monetarypolicy/discountrate.htm">https://www.federalreserve.gov/monetarypolicy/discountrate.htm</a>).
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.
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\13\ The Overview and the Guide are available at <a href="https://www.federalreserve.gov/paymentsystems/psr_relpolicies.htm">https://www.federalreserve.gov/paymentsystems/psr_relpolicies.htm</a>.
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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 (<a href="https://www.frbdiscountwindow.org">https://www.frbdiscountwindow.org</a>).
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 (<a href="https://www.federalreserve.gov/monetarypolicy/discountrate.htm">https://www.federalreserve.gov/monetarypolicy/discountrate.htm</a>; <a href="https://www.federalreserve.gov/paymentsystems/psr_about.htm">https://www.federalreserve.gov/paymentsystems/psr_about.htm</a>).
Other
7. Are there other changes that the Federal Reserve could make to
improve
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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
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