United States 4.0 · National / bank holidays 2008 — 13 Oct; 11, 27 Nov; 25 Dec 2009 — 1, 19, 20 Jan; 16 Feb; 25 May; 3 Jul; 7 Sep; 12 Oct; 11, 26 Nov; 25 Dec Business / banking

Country Profile: United States 1 Last Updated: September 2008

UNITED STATES (US) Country Background

This section provides background information on the country, including key facts, recent economic performance, and information on its government.

Key Facts Capital other major cities Washington New York City, Los Angeles, Chicago, Houston,

Philadelphia, Phoenix, San Antonio, San Diego, Dallas Area 9,826,630 km2 Languages English Currency USD (US Dollar) Country telephone code +1 National / bank holidays 2008 — 13 Oct; 11, 27 Nov; 25 Dec

2009 — 1, 19, 20 Jan; 16 Feb; 25 May; 3 Jul; 7 Sep; 12 Oct; 11, 26 Nov; 25 Dec

Business / banking hours 9:00–17:00 (Mon–Fri) Stock exchanges NASDAQ, New York Stock Exchange (NYSE) Leading national share index NASDAQ 100 (QQQQ), Dow Jones Industrial Average (DJI), Russell 2000

(IWM) Overall share index NASDAQ Composite Index (ONEQ), NYSE Composite Index (NYA), S&P

500 Index (INX), Dow Jones Wilshire 5000 Index (DWC) Internet top-level domain .us .gov .edu .mil

Economic Performance 2002 2003 2004 2005 2006 2007

Exchange rate – USD/EUR1 0.9411 1.1287 1.2416 1.2436 1.2543 1.3706 Money market rate ($Libor 1m) (%)1 1.87 1.23 1.79 3.76 5.36 5.51 Consumer inflation (%)2 1.6 2.3 2.7 3.4 3.6 2.9 Unemployment rate (%)3 5.8 6.0 5.5 5.1 4.8 4.9 GDP volume growth (%)2 1.6 2.5 3.9 3.2 3.4 2.9 GDP (USD bn)4 10,469.6 10,960.8 11,712.5 12,455.8 13,262.1 13,928.5 GDP (EUR bn)5 11,124.9 9,711.0 9,433.4 10,015.9 10,573.3 10,162.3 Population (mil)6 288.13 290.99 293.82 296.56 299.27 302.23 GDP per capita (USD) 36,336 37,666 39,863 42,000 44,315 46,085 Current account (% of GDP)7 -4.5 -4.8 -5.7 -6.4 -6.6 -6.9

1: Period average 2: Annual percentage change 3: Harmonized definition ILO (International Labour Organization) 4: GDP at market prices. Production-based approach. 5: Per exchange rate 6: End of period, recent figures may be IMF projections 7: Trade balance of goods and services + net income + net transfers

Sources: IMF, ECB

Government » Independence 4 July 1776 from Great Britain » Constitution-based federal republic with a bicameral parliament (Congress).

– Senate 100 members directly elected for six-year terms. – House of Representatives (the House) 435 members directly elected for two-year terms. – The 100th United States Congress, which began 4 January 2007, is controlled by the Democratic party.


» Political Leader and Head of State: President George W. Bush (since 20 January 2001). Leader of the Republican party. Next election 4 November 2008.

Legal and Regulatory Issues

This section provides information on the country’s legal and regulatory issues, including legislation, resident and non-resident status, account ownership, cash pooling regulations, account types and charges, FX controls, central bank reporting requirements, anti-money laundering, and electronic transactions.

Resident and Non-resident Status » Companies are resident if they are created or organized under the laws of any US state or the District of

Columbia. » Other companies are classified as foreign.

Account Ownership » Any type of account can be owned by a resident as well as a non-resident company.

Cash Pool ing Regulat ions » Notional pooling is not readily permitted in the US due to regulatory restrictions. » Regulation Q prohibits the payment of interest on corporate demand accounts. Regulation Q is expected to be

repealed in the near future. » Overdrafts are not allowed. » Regulation D limits the number of transfers businesses can make from interest-bearing transaction accounts to

demand accounts. Regulation D is expected to be repealed in the near future. » Repeal of Regulation Q and D, the rise of the super-regional banks and corporate pressure will, it is hoped,

change the status of notional pooling.

Account Types and Charges » There are very few restrictions on domestic companies holding domestic and foreign currency accounts both

within and outside the US. » Foreign companies may also hold bank accounts. These can be denominated in the local currency (USD) and

foreign currencies. Foreign currency bank accounts are not widespread in the USA. » All accounts are fully convertible. » Interest-bearing current accounts and term deposits are not currently available. » Overdrafts are not permitted. » There are no lifting fees levied on funds transfers between resident and non-resident accounts. » In the United States, wire transfers within the country are governed by the following regulations:

– Federal Regulation J – Article 4A of the Uniform Commercial Code

» US bank accounts are not represented by IBANs.

FX Control » The USA has few exchange controls. » There are restrictions on foreign mutual funds. » There are no restrictions on spot and forward foreign exchange transactions. » Residents and non-residents are permitted to deal in foreign currency notes and coin. However, transactions

involving the import or export of banknotes with a value in excess of USD 10,000 must be reported to the US Customs authorities.


Central Bank Report ing (CBR) Requirements » Cross-border holdings may trigger informational requirements to the US Treasury, otherwise there are no central

bank reporting requirements.

Anti -Money Laundering » The USA has implemented anti-money laundering legislation (the Money Laundering and Financial Crimes

Strategy Act of 1998, the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (PATRIOT) Act of 2001, the International Counter Money Laundering and Foreign Anti-Corruption Act of 2001, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, the Sarbanes-Oxley Act of 2002, the Combating Financing of Terrorism Act of 2003, the Tools to Fight Terrorism Act of 2004, the Intelligence Reform and Terrorism Prevention Act of 2004, and the Seasoned Customer CTR Exemption Act of 2007).

» As a Financial Action Task Force (FATF) member, it observes most of the FATF-49 standards. The USA is also a member of the Caribbean Financial Action Task Force (CFATF) (as a Co-operating and Supporting Nation), the Asia Pacific Group on Money Laundering (APG), the Organization of American States/Inter-American Drug Abuse Control Commission (OAS/CICAD) and the Council of Europe MONEYVAL (as an observer jurisdiction).

» The USA has established a financial intelligence unit (FIU), The Commissioner of Internal Revenue Financial Crimes Enforcement Network (FinCEN), which is a member of the Egmont Group.

» Financial institutions in the broadest sense are required to report suspicious transactions to FinCEN. » All currency transactions exceeding USD 5,000 must be reported to FinCEN. » Account opening procedures require formal identification of the account holder. Additional verification is required

for non-personal customers, based on the financial institution’s risk assessment of the customer. Financial institutions do not have to retain copies of the identification information but records of the method of identification and the identification number must be kept.

» Existing customers are exempt from the verification requirements as long as the financial institutions have a ‘reasonable belief’ that they know the true identity of the customer.

Electronic Transact ions » Effective 1 October 2000, the Electronic Signatures In Global and National Commerce Act (E-SIGN Act)

implements a national uniform standard for all electronic transactions that encourages the use of electronic signatures, electronic contracts and electronic records by providing legal certainty for these instruments when signatories comply with its standards.

The Banking Environment

This section includes an overview of the banking market, market dominant banks and background information regarding the central bank and it's tasks.

Overview » At year end 2006, according to the Bank for International Settlements’ “Red Book” (last updated March 2008) ,

there were 17,446 financial institutions operating in the United States with some 111,040 branch offices and $850.9 billion in accounts. This includes commercial banks, savings institutions, credit unions, and branches of foreign banks: – 7,355 commercial banks with 77,099 branches and $712.57 billion in accounts – 1,344 savings institutions with 13,605 branches and $60.34 billion in accounts – 8,535 credit unions with 20,291 branches and $71.8 billion in accounts – 252 foreign banks with $11.18 billion in accounts

» The overwhelming majority of commercial banks are small, local banks. » The 10 largest banks control less than half of total domestic assets. » According to the World Bank the U.S. banking sector provided credit equal to 215 percent of GDP in 2004, more

than for most OECD and developing countries.


» From end of year 1998-2005 foreign banks’ assets in the U.S. market grew by 77 percent (versus 67 percent for all FDIC insured assets), with foreign banks currently holding approximately 19 percent of total U.S. banking assets (U.S. Federal Reserve).

» The long-term demand for banking services in the U.S. market is likely to continue to increase at a relatively stable rate. Globally, banking is one of the more mature industries, with global banking growth of 6 percent in 2004 (according to a June 2006 US International Trade Commission report).

» The United States’ status as a leader in its domestic and international development of the banking sector, and the expected steady but slow growth of banking globally, suggests that room for revenue growth through new branches is only moderate.

» The U.S. banking sector has mirrored consolidation trends in other major economies but is still relatively fragmented and unique in its significant number of regional and community banks. Despite a period of consolidation in recent years, there is still no bank with a branch network in all 50 states. This suggests that that further consolidation of the industry through mergers and acquisitions is a real possibility.

» In addition to the commercial and investment banks in the US, there are many specialised institutions providing financing, e.g. some 10,000 thrift institutions, such as savings and loans associations (known as building societies in other Anglo-Saxo countries) and credit unions; and venture capital firms for entrepreneurs and start-ups.

» Furthermore, in 1999, Congress passed the Financial Modernization Act (Gramm-Leach-Bliley Act), which repealed the Glass-Steagall Act of 1933, which placed significant restrictions on the ability of banks to affiliate with securities and insurance firms. The Gramm-Leach-Bliley Act created a new structure called a “financial holding company”, which may own subsidiaries engaged in banking and non-banking financial activities, including insurance and securities underwriting.

» On September 30, 2005, the U.S. agencies announced that they will adopt a more conservative approach to implementation of Basel II. The supervisors announced a plan that delays implementation of Basel II by one year, applies a more conservative floor on potential capital reductions (required by Basel II) in the transition period, commits to retention of a separate capital leverage ratio for all banks in the U.S., and proposes a modified approach to Basel I (a "Basel IA"), which would apply to all other banks in the United States.

Financial Cris is » Credit quality in US banks has deteriorated due to several factors - the main issue being the sub-prime mortgage

crisis, which has caused several mortgage lenders to file for bankruptcy. This issue continues to grab the financial headlines as American Home Mortgage was the latest lender in 2007 to fall foul of the early payment defaults.

» In 20007, there have been several mergers within the US domestic market - these include Bank of New York/Mellon, Capital One/Hybernia Bank/North Fork, and Am South/Regions Bank.

» On March 14, 2008, JPMorgan Chase, in conjunction with the Federal Reserve Bank of New York, provided a 28 day emergency loan to Bear Stearns, at the time the fifth-largest US securities firm, in order to prevent the inevitable market crash that would result from Bear Stearns going insolvent. Two days later, Bear Stearns signed a merger agreement with JP Morgan Chase in a stock swap worth $2 a share, through which both the shareholders and employees were decimated at the expense of maintaining an orderly market for the greater good. This represents a staggering loss, in league with that of now infamous Enron, as its stock had once traded at $172 a share as late as January 2007, and $93 a share as late as February 2008. The stock swap was later raised to $10 a share. In addition, the Federal Reserve issued a non-recourse loan to JP Morgan Chase thereby assuming the risk of Bear Stearns less liquid assets.

» A number of dramatic events unfolded in September 2008. Investment banks on Wall Street encounted serious liquidity problems. Lehman Brothers Holdings Inc., the four-largest US investment bank, declared bankruptcy and the day after Merrill Lynch & Co., the third-largest, agreed to be hastily takenover by Bank of America Corp, the nation’s largest bank.

» Then an $85 billion emergency credit facility (loan) was extended to AIG International Group by the US Federal Reserve in exchange for an 80% equity stake, thereby partly nationalising the world’s largest insurance group. This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of the government sponsored housing agencies Fannie Mae and Freddie Mac a week earlier where $100 billion was made available to each.

» In an effort to reinject confidence in the US banking sector and stem the financial panic which had gripped the US and begun to spread to foreign markets, the US government, in conjunction with the Federal Reserve and


Treasury Secretary, announced the largest-ever bank resuce plan. The bailout, if approved, will give sweeping powers to the US Treasury to buy up to $700 billion of illiquid mortage backed securities from financial firms. The original proposal, which would have excluded foreign banks, has been revised to include foreign financial institutions with a presence in the US. Additionally, the US administration has pressured other countries to set up similar bailout plans to help stabilise financial markets around the globe. The express intention of the plan is to increase the liquidity of the secondary mortgage markets and reduce potential losses encountered by financial institutions owning these types of securities. Following the news, stock markets around the globe saw their largest one-day gains ever.

» Following the above bailout plan, Goldman Sachs and Morgan Stanely, the last two large investment banks, voluntarily filed to become bank (financial) holding companies, thereby giving up their independent investment banking status to gain easier access to funding to survive the financial turmoil. Shortly thereafter, Morgan Stanley receive as much as 900 billion yen ($8.4 billion) from Mitsubishi UFJ Financial Group Inc. in exchange for a fifth of the U.S. securities firm's shares.

» Shortly thereafter, Washington Mutual (WaMu), the largest US savings and loan, was seized by the US Office of Thrift Supervision government regulators and placed in receivorship with the FDIC as the receiver, marking by far the biggest bank failure in US history. It was one of the lenders hardest hit by the nation’s housing bust and credit crisis, and had already suffered from soaring mortgage losses. WaMu had about $307 billion of assets and $188 billion of deposits. The largest previous US banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984. The FDIC immediately sold virtually all of WaMu – including its deposits and branch network – to JP Morgan Chase & Co. for §1.9 billion.

» In general, consolidation in the banking sector is expected to accelerate as a result of the change of status of the investment banks and continued financial turmoil. And inevitably, a new regulatory framework can be expected since many resulting financial institutions are now “too big to fail” under the AIG standard.

Marke t Dominant Banks » The top five banks, as measured by total consolidated domestic assets, regulated by the Fed at end-June 2008

include: JPMorgan Chase Bank, Bank of America, Citibank, Wachovia Bank and Wells Fargo. » Goldman Sachs is now the sixth-largest US bank by market value. Rumors have speculated that it is considering

merging with Wachovia Bank. » JPMorgan Chase became the biggest US bank by deposits after the acquisition of WaMu. » Bank of America, which purchased LaSalle Bank in October 2007, Countrywide Financial (nationwide leader in

mortgage originator and servicer) in June 2008, and Merrill Lynch the investment bank, is now one of the world’s largest financial firms. Nonetheless, the firm generates nearly all of its revenue in the US market which has its strategic focus. Its domestic footprint in the retail market includes more than 6,000 branches and 18,000 ATMs, and some 59 million consumer and small business relationships.

» The major domestic cash management banks are JPMorgan Chase, Bank of America, Citibank, Wachovia and Wells Fargo. In addition, all the major international cash management banks have a presence in the USA.

» The top five banks in the US now dominate the cash management industry with almost 60% of the market.

The Central Bank » The Federal Reserve Act, approved by Congress in December 1913, established the Federal Reserve System. » Often referred to as the Federal Reserve or simply "the Fed," it is the central bank of the United States. » The Fed is a network of twelve regional Federal Reserve Banks, headed by the Board of Governors in

Washington. » A major component of the System is the Federal Open Market Committee (FOMC), which is made up of the

members of the Board of Governors, the president of the Federal Reserve Bank of New York, and presidents of four other Federal Reserve Banks, who serve on a rotating basis. The FOMC oversees open market operations–the main tool used by the Federal Reserve to influence money market conditions and the growth of money and credit.

» The Federal Reserve's responsibilities fall into four general areas: – conducting the nation's monetary policy by influencing money and credit conditions in the economy in

pursuit of full employment and stable prices – supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking

and financial system and to protect the credit rights of consumers


– maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

– providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments systems

Financial Authorities

This section includes information on key financial authorities and the country’s banking association.

Overview » At the federal level, three bodies have the primary responsibility for bank supervision:

– The Federal Reserve regulates Edge Act banks – the US branches of foreign banks and foreign activities of US banks. It also supervises state chartered member banks and US bank holding companies.

– The US Treasury Office of the Comptroller of the Currency regulates national banks. – The Federal Deposit Insurance Commission regulates banks that do not hold accounts with the Federal

Reserve system. » Each state has its own state banking commission. » The National Credit Union Administration (NCUA) supervises federal credit unions and insures savings in federal

and most state-chartered credit unions. » In addition, the Securities Echange Commission (SEC) and the Commodities Futures Trading Commission are

respectively responsible for the securities/stock and commodities markets. » Following the financial turmoil of 2007 and 2008 – including a number of record-sized bailouts, the nationalisation

of two housing lenders, and the merger of large financial firms creating insitiutions “too big to fail” – a new regulatory framework can be expected. Large scale regulatory reform also followed the savings and loan crisis of the 1980s.

Off ice of the Comptrol le r of the Currency (OCC) » The OCC charters, regulates, and supervises all national banks. It also supervises the federal branches and

agencies of foreign banks. Headquartered in Washington, D.C., the OCC has four district offices plus an office in London to supervise the international activities of national banks.

» The OCC's activities are predicated on four objectives that support the OCC's mission to ensure a stable and competitive national banking system: – To ensure the safety and soundness of the national banking system. – To foster competition by allowing banks to offer new products and services. – To improve the efficiency and effectiveness of OCC supervision, including reducing regulatory burden. – To ensure fair and equal access to financial services for all Americans.

» In regulating national banks, the OCC has the power to: – Examine the banks. – Approve or deny applications for new charters, branches, capital, or other changes in corporate or banking

structure. – Take supervisory actions against banks that do not comply with laws and regulations or that otherwise

engage in unsound banking practices. The agency can remove officers and directors, negotiate agreements to change banking practices, and issue cease and desist orders as well as civil money penalties.

– Issue rules and regulations governing bank investments, lending, and other practices.

Federal Deposit Insurance Commission (FDIC) » The FDIC preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks

and thrift institutions for at least $100,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.


» An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s.

» As of June 30, 2008, the FDIC directly insures 8,451 financial institutions, more than half of the institutions in the banking system. Banks can be chartered by the states or by the federal government. Banks chartered by states also have the choice of whether to join the Federal Reserve System. The FDIC is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System. In addition, the FDIC is the back-up supervisor for the remaining insured banks and thrift institutions.

» The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. With an insurance fund totalling more than $49 billion, the FDIC insures more than $3 trillion of deposits in U.S. banks and thrifts – deposits in virtually every bank and thrift in the United States.

» The FDIC insures deposits only. It does not insure securities, mutual funds or similar types of investments that banks and thrift institutions may offer.

Off ice of Thri f t Supervision (OTS) » The OTS, an agency of the United States Department of the Treasury, is the primary regulator of federal savings

associations (sometimes referred to as federal thrifts). Federal savings associations include both federal savings banks and federal savings and loans. The OTS is also responsible for supervising savings and loan holding companies (SLHCs) and some state-chartered institutions.

» The OTS was established by Congress as a bureau of the Department of the Treasury on August 9, 1989 as part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

» OTS is unique among the federal bank regulatory agencies in that it supervises holding companies as well as thrift institutions. This results in OTS providing consolidated supervision for such well-known firms as General Electric (GE), AIG, Inc., Ameriprise Financial, American Express, Morgan Stanley, Merrill Lynch and Lehman Brothers. OTS's consolidated supervision program for GE, AIG Inc., and Ameriprise has been recognized as 'equivalent' by the European Union — allowing these firms to operate their financial businesses in the EU without forming an EU holding company and submitting to supervision in the EU.

» As of August 2007, the OTS supervised 472 U.S. domiciled holding company enterprises, with consolidated assets of approximately $8.5 trillion. These enterprises owned 442 thrifts with total assets of $1.24 trillion, or 82 per cent of total thrift industry assets.

The Nat ional Credit Union Administrat ion (NCUA) » The NCUA is the United States federal agency that administers the 1934 “Federal Credit Union Act” created by

Congress to serve, protect and promote a safe, stable national system of cooperative financial institutions that encourage thrift and offer a source of credit for their members.

» It supervises and charters federal credit unions and insures savings in federal and most state-chartered credit unions across the country through the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith and credit of the United States government.

» Its mission is to facilitate available credit union service to all eligible consumers, especially those of modest means, through a regulatory environment that fosters a safe, sound credit union system.

» As of September 2008, there were 9,500 federally insured credit unions with 82 million members had assets of $520 billion and loans of $355 billion.

Securi t ies Exchange Commission (SEC) » The U.S. Securities and Exchange Commission (SEC) is a United States government agency having primary

responsibility for enforcing the federal securities laws and regulating the securities industry/stock market. » Its mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. » The SEC was created by section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C. § 78d and

commonly referred to as the 1934 Act). In addition to the 1934 Act that created it, the SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002 and other statutes.


Commodit ies Futures Trading Commission (CFTC) » The Commodity Exchange Act (CEA), 7 U.S.C. § 1 et seq., prohibits fraudulent conduct in the trading of futures

contracts. In 1974, Congress amended the Act to create a more comprehensive regulatory framework for the trading of futures and options contracts and created the Commodity Futures Trading Commission to serve as the successor to the Commodity Exchange Authority. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000.

» The CFTC is an independent agency of the United States Government, i.e. unlike the SEC, the CFTC exists outside the departments of the executive (presidential) branch.

» The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.

American Bankers ’ Associat ion » Founded in 1875 and now based in Washington, DC, the American Bankers Association represents banks of all

sizes on issues of national importance for financial institutions and their customers. » Its membership -- which includes community, regional and money centre banks and holding companies, as well

as savings associations, trust companies and savings banks -- makes ABA the largest banking trade association in the country.

» The mission of the American Bankers Association is to serve its members by enhancing the role of financial services institutions as the pre-eminent providers of financial services. This mission is accomplished through federal legislative and regulatory activities, legal action, communication and consumer education, research, and products and services that promote, educate, train, inform and support members.

Bankers ’ Associat ion for Finance and Trade » The Bankers' Association for Finance and Trade is a financial trade association whose membership represents a

broad range of internationally active financial institutions and companies that provide important services to the global financial community.

» BAFT serves as a forum for analysis, discussion and action among international financial professionals on a wide range of topics affecting international trade and finance, including legislative/regulatory issues.

» Because of its global focus and broad membership, BAFT plays a unique role in expanding markets worldwide, shaping public policy, and promoting practices that preserve the safety and soundness of the international financial system.

» BAFT's 150 members include U.S. and non-U.S. banks, service members, and non-U.S. bank trade associations. BAFT's U.S. bank members include not just large global banks but also regional and community banks whose customers are active in foreign trade, either as exporters or importers. The international activities of BAFT's members extend far beyond foreign trade, and include the global capital markets, global custody, and global payments businesses.

» On July 1, 2002, BAFT became an affiliate of the American Bankers Association to strengthen BAFT's lobbying and advocacy capabilities by giving BAFT access to the most influential and well-staffed financial services trade association in Washington.

Clearing Systems

This section provides an overview of the different clearing systems in operation and includes information about each system such as transaction types, operating hours and clearing cycle details.

Overview » In the United States, interbank payments are processed and settled primarily through the following mechanisms:

– cheque clearing, – automated clearing houses (ACHs), – card networks,


– same-day electronic funds transfer systems (Fedwire and CHIPS) and – the Federal Reserve’s National Settlement Service (NSS).

» There are two ACH operators in the US. The Federal Reserve operates FedACH while the other is the private Electronic Payments Network (EPN). Together, they process most of the low-value electronic payments.

» Using these mechanisms, banks exchange and settle payments directly with each other, through private sector clearing houses, through correspondents, or through the Federal Reserve.

» There are two major large-value payment transfer systems in the United States: – Fedwire, operated by the Federal Reserve, and – CHIPS, operated by the Clearing House Interbank Payments Company L.L.C. (CHIPCo).

» Generally, these payment systems are used by financial institutions and their customers to make large-dollar, time-critical transfers. In addition, financial institutions may use separate communication systems to send payment instructions to their correspondents for the transfer of correspondent balances or to initiate Fedwire or CHIPS payments.

High Value Clear ing Fedwire » The Fedwire Funds service is a real-time gross settlement system. » Participants: more than 9,500 participants. » Transaction types: High-value and urgent domestic and cross-border payments, e.g. payments for the settlement

of interbank purchases and sales of federal funds; the purchase, sale, and financing of securities transactions; the disbursement or repayment of loans; and the settlement of real estate transactions.

» Price indication: Since 1999, Fedwire funds transfers have been priced using a volume-based fee schedule. This policy was established to reflect more accurately the cost structure of Fedwire services. In particular, Fedwire is characterised by high fixed costs and low marginal costs. Currently, Fedwire transaction fees are charged to both the originating institution (debit side) and receiving institution (credit side). In 2003, the fees charged by Reserve Banks for an online Fedwire transaction range from USD 0.10 to USD 0.30 per transfer, per institution. A surcharge of USD 15 is required to initiate or receive an offline transfer.

» Operating hours: business day begins at 21:00 Eastern Standard Time (EST) on the preceding calendar day and ends at 18:30 EST Monday through Friday. The deadline for initiating third-party transfers is 18:00 EST.

» Clearing cycle details: settlement is immediate, final, and irrevocable upon processing

National Se tt lement Service (NSS) » NSS, owned and operated by the Federal Reserve System, allows participants in private-sector clearing

arrangements to exchange and settle transactions on a net basis through reserve or clearing account balances. » NSS is available to arrangements that settle across Federal Reserve Districts as well as to arrangements that

settle entirely within a single Federal Reserve District. » Participants: approximately seventy, including check clearinghouse associations, automated clearinghouse

(ACH) networks, and credit card processors. » NSS provides an automated mechanism for submitting settlement files to the Reserve Banks, improves

operational efficiency, and reduces settlement risk to participants by granting settlement finality on settlement day.

» NSS also enables Reserve Banks to manage and limit risk by incorporating risk controls that are as robust as those used in the Fedwire Funds Service.

» Price indication: In 2003, the Federal Reserve charges a USD 14 fee for each settlement file submitted and a USD 0.80 per-entry fee for each item on the file. Arrangements that incur total per-entry and per-settlement charges of less than USD 60 per month are charged a minimum monthly fee of USD 60.

» Operating hours: participants can submit NSS files for processing between 8:30 and 17:00 EST; files submitted earlier than 8:30 are queued for processing beginning at 8:30.

Clearing House Inte rbank Payment System (CHIPS) » CHIPS is the bank-owned payments system for clearing large value payments. » CHIPS is a real-time, final payments system for U.S. dollars that uses a combination of pre-funding bi-lateral and

multi-lateral netting for maximum liquidity efficiency. » CHIPS processes over 300,000 payments a day with a gross value of $1.5 trillion.


» Participants: only 46 of the largest banks dealing in U.S. dollars participate in CHIPS; 63% of these are non-U.S. banks. Smaller banks have not found it cost effective to participate.

» Transaction types: high-value and urgent domestic and cross-border payments. » Price indication: No pricing information is available. » Operating hours: CHIPS processes transactions beginning at 21:00 for payments valued the next business day. » Clearing cycle details: payments are final as soon as they are released into the system. Over 85% of payments

are cleared before 12 pm.

Low Value Clear ing ACHs » The automated clearing house (ACH) is a nationwide electronic file transfer mechanism processing electronically

originated batches of credit and debit transfers for depository institutions. » The Federal Reserve is the nation’s largest ACH operator and as of March 2003 the Clearing House’s Electronic

Payments Network (EPN) is the sole private sector ACH operator. » ACH operators rely on each other to process interoperator ACH transactions—that is, transactions in which the

originating depository financial institution and the receiving depository financial institution are served by different operators. Interoperator transactions are settled by the Reserve Banks.

» Transaction types: electronically originated batches of credit and debit transfers – Credit transfers include direct deposit of payroll, social security benefits, and tax refunds, as well as

payments to contractors and vendors. – Debit transfers include direct debits of consumer and business accounts for the payment of mortgages,

bills, and tax obligations. More recently, the ACH network is being used to convert check payments into ACH debit transfers. By providing the appropriate disclosures, businesses can use account information on checks to initiate ACH debit transfers and reduce payment processing costs.

» Price indication: In 2003, fees charged by the Federal Reserve for ACH services offered to depository institutions for the origination of ACH transfers range from USD 0.0025 per item to USD 0.0030 per item based upon origination service provided. The Federal Reserve also charges depository institutions fees for file origination, account servicing, ACH settlement and receipt of ACH transactions, and surcharges for cross-border items. Prices may also vary for transactions that require the use of multiple networks for processing. Private sector ACH processors assess their members a variety of fees, including transaction fees, access fees and fees for non-automated services.

» Clearing cycle details: cut off times depend on bank, presentation format and ACH operator rules – ACH transactions processed by the Federal Reserve are settled through deposit-taking institutions’

accounts held at the Federal Reserve. – Since June 2001, settlement for ACH credit transactions processed by the Federal Reserve Banks is final

when posted to deposit-taking institutions’ accounts, which is currently at 8.30 Eastern standard time (EST) on the settlement date.

– Credit for Federal Reserve ACH debit transfers is not final at settlement. – Credit for debit items is available to the receiving deposit-taking institution at 11:00 EST on settlement

date, but is not final until the banking day following the settlement date. – Federal Reserve ACH services are governed by Operating Circular 4, which incorporates the Operating

Rules of the National Automated Clearing House Association. – Transactions processed by EPN are settled on a net basis using NSS.

Cheque Clearing » The locations of a cheque’s deposit and drawee banks determine how a cheque is cleared. If the banks are

different, the cheque can be cleared via the Federal Reserve system, via a regional or local clearing houses or on a bilateral basis between banks. Check 21, which became effective in October 2004, allows for electronic clearing of cheques.

» There are four channels for clearing cheques: – ‘On-us’ involves a single bank and is used when the payee deposits a cheque in the same bank. – Regional or local clearing houses exchange cheques drawn on member participants. There are

approximately 150 cheque clearing house associations. – The Federal Reserve banks provide cheque clearing services. In this case, banks present the cheque to

their local Federal Reserve for clearing and settlement. The Federal Reserve banks have reduced the number of its cheque processing centres from 45 in 2003 to 18 locations nationwide by early 2008. A


further seven centres are to close over 2008 and the total number of full-service processing centres is expected to be no more than four by 2010.

– ‘Direct sends’ are arrangements set up between individual banks to avoid the expense of clearing cheques via the Federal Reserve or clearing house.

» Pricing indication: Typically, cheque clearing houses are non-profit, cooperative associations that assess their members the actual costs of operating the clearing house. Correspondent banks charge for their services in a variety of ways, and there is little public information available concerning the fees assessed for their collection services. Federal Reserve fees for cheque collection services vary based on the time and location of deposit and the amount of sorting performed by the depositing institution.

Payments, Collection Methods and Instruments

This section provides an overview of the payment methods employed in the country, including statistics and more detailed qualitative information about such methods.

Overview » Electronic credit, or ‘wire’, transfers are the predominant method of making payments, in terms of value. » In terms of volume, cheques remain very important, despite a steady decline in recent years. » The use of payment cards is increasing and in volume terms overtook cheques in 2004 as the most popular non-

cash retail payment instrument.

Transaction Volumes, mil. Transaction Values, USD bn. 2004 2005 2006 % change 2004 2005 2006 % change Debit cards 19,680 22,203 26,038 17.3 728.9 868.3 1,024 17.9 Credit cards 19,126 20,745 22,357 7.8 1,606.9 1,777.2 1,945 9.4 Wire transfers 194 204 212 3.9 815,692.2 868,417.3 967,213 11.4 ACH credits 5,096 5,513 6,145 11.5 13,977.4 15,628.0 18,112 15.9 ACH direct debits 5,796 7,283 8,664 19.0 11,893.2 12,917.7 13,500 4.5 Cheques 34,830 33,070 30,557 -7.6 38,417.5 37,279.1 41,730 11.9 Total 84,722 89,018 93,972 5.6 882,316.1 936,887.6 1,043,523 11.4 Note: Figures are rounded. Percentage change calculated from 2005-2006

Sources: Bank for International Settlements – CPSS Red Book, March 2008

Card Payments » Financial cards are widespread in Americans’ wallets, the vast majority of which are credit. » At year-end 2006 there were more than 1.3 billion cards with a credit function (of which more than half are retailer

cards), 271 million with debit functionality and 938 million with cash functionality (note: a card with multiple functions may appear in several categories; therefore, it is not meaningful to add the figures).

» At the same period, there were 395 thousand ATM and more than 5 million POS terminals. » Consumers have adopted debit cards as their preferred payment type with increasing frequency over the last five

years. In 2004, the number of debit card transactions surpassed the number of personal credit card transactions for the first time. Debit card growth has been helped by the more widespread merchant acceptance of PIN and signature debit, as well as an increase in online purchasing. Debit cards have also largely replaced traditional ATM cards, and contributed towards a steady increase in ATM transactions.

» The following is an extract from Euromonitor’s most recently published report – March 2008 – on financial cards in the United States to year-end 2007:

» Soft housing market affects consumer spending » Growth in pre-paid cards

– Pre-paid cards saw the highest increase in use over the review period. – This type of multifunctional card has attributes that span the financial card spectrum, from ATM cards to

smart cards. Card issuers and operators are not the only ones that have discovered the benefits of pre-paid cards, as other businesses and the government are using them to replace pay cheques, for example


to distribute unemployment benefits. Consumers also like the convenience and versatility of pre-paid cards. With greater acceptance, this sector is destined to grow further.

» Increase in fraud prompting government regulations – Fraud continues to grow and evolve in the financial card industry. – Besides the typical counterfeit or stolen cards, thieves are hacking into systems to steal consumers’

identification information. This has led to a whole new era, where IDs can be used to acquire false credit cards and then purchase pre-paid cards.

– This has prompted several government agencies, especially the US Senate, to provide consumers with more safeguards when their personal data are stolen from third parties.

Wire Transfe rs » Banks within the United States utilize SWIFT to make payments to foreign banks in other countries. » For bank-to-bank transfers that are conducted within the United States, the Fedwire system is used. This system

utilizes the Federal Reserve System and its assignment of bank routing numbers (in a similar way to how Automated Clearing House, or ACH payments, use those numbers to effect the payment and collection of checks).

» Wire transfers are domestic or international transactions where no cash or cheque exchange is involved, but the account balance is directly (electronically) transferred from one bank to the other.

ACH Credits & Direct Debits » ACH transactions are a common form of electronic funds transfer used to make both recurring and non-recurring

payments. ACH payments may be either credit or debit transactions. » Direct debits have seen significant growth, up over 200% in 5 years. » In an ACH credit transaction, funds flow from the originator to the receiver, and in a debit transaction, funds flow

from the receiver to the originator. » ACH credit payments include Direct Deposit of payrolls, government benefit payments and corporate payments to

contractors and vendors. Direct Deposit remains the most widely used type of ACH payment with 5 billion payments in 2007,

» Debit payments include mortgage and loan payments, insurance premium payments, consumer bill payments and corporate cash concentration transactions.

» US companies who utilize wholesale lockboxes to receive consumer payments have been able to convert those paper checks into ACH transactions for several years. On 16 March 2007, the usage of check conversion expanded dramatically when companies could began using a new technology called back office conversion entry (BOC). This new technology allows for checks presented at the point of purchase to be converted to ACH debits during back-office processing. It’s growth has been explosive, growing some 3500% in the year since its introduction.

» In addition, businesses and individuals may use the ACH to make payments to, or receive reimbursement from, the federal government related to federal tax obligations.

Cheques » The paper cheque was the most frequently used non-cash payment instrument in the United States until 2004. » Nonetheless, while volumes continue to decline ,some 30 billion cheques were written during 2006 making the

United States the world leader in cheque volume. Estimates also suggest that individuals wrote half the volume of cheques, although less than a fifth of cheque value.

» Private and public sector efforts to shift cheque payments to electronic media, such as ACH and payment cards, are gaining ground. The expansion of online POS terminals and the widespread acceptance of credit and debit cards at retail establishments have presented consumers with significant payment alternatives to cheques.

» Furthermore, the implementation of check image processing initiated by Check 211 (the Check Clearing for the 21st Century Act) has increased cost per check processing in the short term, which in turn has created an incentive for corporate customers to seek out less expensive payments instruments.

1 Under its broadest interpretation, every bank in the US must be prepared to receive and process image replacement documents (IRDs) the same way they would with regular paper checks.


Electronic Banking

This section includes an overview of electronic banking in the country as well as information on EDIFACT, e-payments and e-invoicing.

Overview » Electronic banking is widely available in the USA. Services include balance reporting, transaction initiation,

payables and receivables tracking and image capabilities. » There is no nationwide bank-independent bank standard, but most US banks use the Bank Administration

Institute (BAI) format to transmit balance and transaction data. » BAI allows users to access intra-day and end-of-day balance and transaction reports, to initiate payments and to

track payments and receivables. » Information is available via each bank’s electronic banking platform or information from a number of banks can be

consolidated, using BAI, and provided through one bank’s electronic banking platform. » Internet banking is also widely available, providing access to the same level of information via a web-browser

rather than an electronic banking platform. » Mobile-commerce (abbreviated M-commerce) is increasingly gaining acceptance:

– Using a mobile phone for conducting financial transactions is becoming more popular. – Recently, some of the largest banks in the US started working with mobile phone and software companies

to offer this service to their client base. There is also a link between the banks and financial cards operators to see how this developing technology can be used in this industry.

– M-commerce offers speed and convenience, which is very important to consumers in their fast-paced lives.

EDIFACT / Host-to-Host Solut ions » Corporations growing effort of streamlining payment processing is supported by a number of banks. » Host-to-host (H2H) solutions have been implemented, which provide direct connectivity between the customer’s

ERP system and the bank’s processing engine with no bank software in between.

E-payments » Micropayments are offered by domestic and “global” players. » In general, such solutions usually rest on two important prerequisites: (1) prepayment and (2) settlement via debit

or credit cards.

E-invoice / EBPP » No industry wide electronic bill present and payment (EBPP) solutions exist on the market, although various

provides operate in the United States.

Cash Pooling Solutions

This section covers cash pooling solutions such as notional pooling, cash concentration, and multicurrency and cross border pooling.

Trends & Deve lopments » According to cash management experts Lawrence Foreman and Mike McFarlane, at Ernst & Young, the US cash

management industry went through its own recession from 2002 to 2005, but it is now regaining the growth in profits that it enjoyed at the beginning of this decade. This return to revenue growth is driven by electronic payments and solutions, growth in positive pay and check imaging.


» Other cash management functions that have increased in popularity in the past year include ACH, ARC, web-initiated payments, point-of-purchase (POP) payments, as well as purchase cards (p-cards). Wires have also seen about 10% growth in the past year, although it is not clear what is driving this. According to Forman, at Ernst & Young, this could be partly due to the growth in international trade and the immediacy of wire payments. Read more on trends in the cash management industry in Lawrence Forman's US Cash Management Services Survey 2006.

» Check 21, which was introduced in October 2005, has dramatically changed the behaviour of banks in the cash management industry. It has lead to rapid take-up of image exchange and remote deposit capture.

» Furture developments: – Advances in technology and the increasing globalisation of trade are changing the nature of cash

management in the US. According to Wells Fargo's Peltz, an increasing number of the bank's customers now have international requirements such as sending payments abroad, or trade finance in developing countries.

– Developments in communications technology is also driving the increasing mobilisation of the cash management industry, and many corporate treasurers now expect to access financial data and cash management tools via iPhones and BlackBerries, and to give approval for wire transfers and other cash management functions, e.g. sending check images.

– Online lockbox is starting to gain traction. Some banks are introducing their own mobile solutions for treasurers and CFOs.

Notional Pool ing » Notional pooling is not readily permitted in the US due to regulatory restrictions. » Regulation Q prohibits the payment of interest on corporate demand accounts. Regulation Q is expected to be

repealed in the near future. » Overdrafts are not allowed. » Regulation D limits the number of transfers businesses can make from interest-bearing transaction accounts to

demand accounts. Regulation D is expected to be repealed in the near future. » Repeal of Regulation Q and D, the rise of the super-regional banks and corporate pressure will, it is hoped,

change the status of notional pooling. » If this remains a sticking point, it is likely banks will create a form of interest optimisation product.

Cash Concentrat ion » Domestic cash concentration techniques are widely available and commonly used not least because of the

constraints on notional pooling. » Zero balancing is the most common liquidity management technique and is offered by both domestic and

international banks. Cash concentration allows companies to consolidate balances held with different banks. » Funds that are required on a same-day basis are typically concentrated via Fedwire or CHIPS. Funds may also

be concentrated for availability on a next-day basis using an ACH debit. » Lockbox accounts allow companies to collect check payments across the country. Using lockbox banking is a

cash flow improvement technique in which a corporate has its customers' payments delivered to a special post office box instead of its business address. Bank courier’s have a key to the post office box and remove the payments received and deliver the corporate’s customer payments to the corporate’s bank. The bank then opens and process and payment for deposit directly into the corporate’s account. Lockbox banking is typically used by businesses that receive payments from numerous customers spread geographically away from the corporate.

Mult icurrency and Cross Border » Cross-border notional pools are not commonly available in the USA. » There are no major operational differences between the FedACH and EPN ACH solution. The former primarily

uses batch processing while the later utilises more of a flow process. Regarding fee structures, There are small differences in origination and receiving fees, as well as file, assessment / servicing and settlement. According to a recent internal price comparison study conducted by FedACH for a large American bank with large volume (several thousand items), the FedACH service was less expensive.

» The FedACH can be used to send ACH payments to Canada, Mexico and five European countries: Austria, Germany, the Netherlands, Switzerland and the United Kingdom. In the future, service will be expanded to other


international endpoints. » Cross border payment instructions are typically routed through SWIFT or CHIPS. » Through the NAFTA agreement, signed in 1994 between Canada, Mexico and the US, USD payments can be

cleared through the local banking system in all three countries. » Although the introduction of NAFTA has made it easier, few US companies seek to concentrate cash across

borders. » NACHA has developed an effective cross-border ACH transfer system with Canada but not Mexico.

Sources

The hyperlinks of various sources used throughout this country profile are provided below.

Federal Reserve System (Central Bank) www.federalreserve.gov Department of the Treasury www.treasury.gov Department of Commerce www.commerce.gov Office of the Comptroller of the Currency (OCC) www.occ.treas.gov Federal Deposit Insurance Commission (FDIC) www.fdic.gov Office of Thrift Supervision (OTS) www.ots.treas.gov National Credit Union Association www.ncua.gov FedStats www.fedstats.gov CHIPS (Clearing House Interbank Payment System) www.chips.org NACHA (National Automated Clearing House Association) www.nacha.org EPN (Electronic Payments Network) www.epaynetwork.com The Clearing House Payments Company www.theclearinghouse.org New York Stock Exchange (NYSE) www.nyse.com American Stock Exchange (AMEX) www.amex.com NASDAQ www.nasdaq.com Chicago Bond Options Exchange (CBOE) www.cboe.com American Bankers Association www.aba.com Association of Financial Professionals www.afponline.org US Chamber of Commerce www.uschamber.com Bank for International Settlements www.bis.org

Documents

United States 4.0 · National / bank holidays 2008 — 13 Oct; 11, 27 Nov; 25 Dec 2009 — 1, 19, 20 Jan; 16 Feb; 25 May; 3 Jul; 7 Sep; 12 Oct; 11, 26 Nov; 25 Dec Business / banking