Partnering with the Federal Reserve: the Fed & You

Partnering with the

Federal Reserve:

the Fed & You

October 16, 2013

The Pillars of the Fed

Financial Services

Monetary Policy

Supervision and Regulation

Financial Services - Cash

Currency and Coin

– Supply currency and coin to Eleventh District FIs

– Receive, sort and store excess currency and coin from FIs

– Maintain the quality of currency and coin in circulation

Financial Services - Cash

Cash Facts

– The $1 and $20 are the two most commonly used bills

– Life expectancy of a $1 bill is 22 months; $20 bill is 25 months

– The Dallas Fed destroys about $15 million in unfit bills per day

– Unfit currency is replaced with notes from the Bureau of Engraving

and Printing (BEP) in Washington, DC, or in Ft. Worth

– Unfit coins are sent to the Mint to be melted and re-struck

– Our high-speed processing machines process about 90,000 notes

per hour

– The Dallas Fed detects about 300 counterfeit bills per month

Financial Services - Checks

Check Collection/Clearing

– Consolidation of check processing operations

– 99%+ of our incoming items are deposited in image cash letters

(ICLs)

– 99%+ of our outgoing items are sent to financial institutions and

their processors in ICLs

– New FedReturn® Mixed ICL Deposit Deadline

Financial Services – Fedwire / FedACH

Electronic transfer of funds among financial institutions nationwide – Fedwire Funds

• Fedwire Extended Remittance Information

– FedACH

• One of two ACH networks in the country

• Direct Deposit/Direct Debit

• Other uses

– cash concentration/disbursement

– check conversion

• FedGlobal

• FedPayments Reporter

• FedACH SameDay

Financial Services - FedLine

Connectivity to the Fed

– FedLine Web

– FedLine Advantage

– FedLine Command

– FedLine Direct

Business Continuity

Business Continuity

– ACH – “Buddy Bank”

– Fedwire – Offline volume limitations

Emerging Trends in Payments

Mobile Banking

– Mobile RDC

– Mobile Photo Bill Pay

– Mobile Account Opening

Mobile Payments

Mobile Wallets

Emerging Trends in Payments

Person-to-Person (P2P) Payments

– PayPal, PopMoney, ClearXchange, PayNet

Healthcare Payments

FedPayments Reporter

Payments Fraud

Positive Pay

Corporate Account Takeover

– Anomaly Detection

– Out-of-Band Authentication

– Dual Control

U.S. Adoption of the EMV Standard

Fed Strategic Plan

Public Consultation Paper

– FedPaymentsImprovement.org

– Comments due by Dec. 13, 2013

Monetary Policy

The Fed’s primary mission is to ensure that enough

money and credit are available to sustain economic

growth without inflation.

– Reserve requirements

– Discount window

– Open market operations

– Interest rate on reserve balances

– TDF auctions/offerings

Monetary Policy

Master Account

Interest on Required & Excess Balances

Reserves

Term Deposit Facility (TDF) offering

Discount Window

Monetary Policy: Master Account

Cash

ACH

Checks

Funds / Securities

Interest Payments

Reserve Requirement

Service Fees TT&L

Opening

Balance

Closing

Balance

Monetary Policy: Reserve & Excess

Balances

Interest on Required Reserves Balances

Interest on Excess Balances

Excess Balance Account

Monetary Policy: Reserve & Excess

Balances

Internal FR for Federal Reserve System; Not for Public Release

$-

$400.00

$800.00

$1,200.00

$1,600.00

$2,000.00

$2,400.00

Reserve Balances at Federal Reserve Banks

Monetary Policy: Reserves

Regulation D

Reservable Liabilities

FR2900

Monetary Policy: TDF

Tool to drain reserve balances

Small-value auctions

No implications for near-term monetary policy

TDF auctions and offerings held about every other

month

Monetary Policy: The Discount Window

Lending Programs

Eligibility

Access

Collateral

Monetary Policy: The Discount Window

Primary Credit - generally available for short periods, overnight to several weeks

Secondary Credit - available to institutions not in satisfactory financial condition

Seasonal Credit - available to small institutions with seasonal funding needs

Monetary Policy: The Discount Window

In response to the financial crisis in

2009, System-wide lending activity

increased significantly

Monetary Policy: Discount Window

Internal FR for Federal Reserve System; Not for Public Release

Number of Loans during the most recent financial crisis

0

5000

10000

15000

20000

25000

2006 2007 2008 2009 2010 2011

Monetary Policy: The Discount Window

Lending Programs

Eligibility

Access

Collateral

Banking Supervision & Regulation

One of six regulators of

financial institutions

Supervise state-member

banks, bank holding

companies, thrift-holding

companies, and foreign

banks with U.S.

operations

Bank Failures

0

10

20

30

40

50

60

0

5

10

15

20

25

30

35

40

45

2008 2009 2010 2011 2012 2013

Assets

, B

illio

ns o

f D

olla

rs

Num

ber

of

Banks

Number Assets

Deteriorating Financial Conditions

Minimize risk of loss

– Federal Reserve

– U.S. Treasury

– Payments System

Managing Risk

Review financial condition

– Utilize regulatory exams

– Analyze financial reports

– Communicate with regulators

– Contact DIs

– Monitor trends in payments system (ACH, checks, funds, etc.)

– Evaluate risk to affiliated DIs

Potential Risk Controls

Daylight credit

Real-time monitor

Prefund cash shipments

Discount window eligibility

Require collateral

Take custody of collateral

Apply additional haircuts

Restrict or deny services

Credit Risk Management

Daylight Credit

Overnight Credit

Payment System Risk (PSR) Policy

Addresses the use of Daylight

Credit

Central Bank’s role

PSR Policy Components

- Net Debit Caps

- Fees and Pricing

Collateral and Pricing for DLODs

Voluntary

Collateral margins & eligibility

Collateralized DLODs – $0 fee

Uncollateralized DLODs – 50 bps

$150 fee waiver

Collateral Processing for DLODs and Discount

Window

Automated withdrawal requests

– DTC (The Depository Trust Company)

– FSS (Fedwire Securities Service)

Resources and Contacts

Federal Reserve Financial Services

http://www.frbservices.org

Federal Reserve Discount Window

http://www.frbdiscountwindow.org

General information regarding Payment System Risk Policy

http://www.federalreserve.gov/paymentsystems/psr_about.htm

Overview of the PSR policy

Information on PSR policy compliance for small users of intraday credit

http://www.federalreserve.gov/paymentsystems/files/psr_overview.pdf

Questions?