The Federal Reserve banks have begun converting their individual book- entry services to a single system, in an effort to reduce operational costs.
Book-entry securities are electronic alternatives to paper securities certificates. About 8,550 participants conduct about 55,000 daily book- entry transactions through the Fed, and the systems run by the 12 regional banks move an average of $628 billion in securities per day.
The Fed's book-entry systems are part of Fed Wire, the central bank's high-speed electronic payment system that handles nearly all bank exchanges of U.S. Treasury securities.
The central bank said that by converting the various Fed bank services to a single system based in East Rutherford, N.J., it can achieve economies of scale that do not currently exist.
Not immediately apparent is whether the improved efficiency will result in lower fees to banks using the Fed services.
The Federal Reserve Bank of Philadelphia is the first of the Fed banks to have converted its book-entry securities operations. The other 11 Fed banks are expected to complete their conversions by the end of 1997.
Fed officials declined to be specific about cost benefits or the effect of cost reductions on the pricing of Fed services.
The new national book-entry system is part of the Fed's three-year effort to streamline its wholesale and retail electronic payment services, according to Dara Hunt, senior vice president and manager of wholesale payments for the New York Fed.
She said the effort is just one of several planned enhancements to Fed Wire.
The Fed also is trying to make Fed Wire more compatible with the transfer payment systems of two private-sector transfer payment systems: the New York Clearing House's Clearing House Interbank Payments System, or Chips; and the Society for Worldwide Interbank Financial Telecommunication, or Swift, in Brussels.
After the planned improvements are completed, Fed Wire should be "more efficient for banks that use multiple systems," said John R. Mohr, executive vice president of the New York Clearing House.
Other enhancements to Fed Wire include an extension of the network's hours of operation.
Beginning next year, Fed Wire will be open 18 hours a day instead of the current 10. The intent is to reduce the risks associated with foreign exchange transactions by giving banks more time to settle and to pay transactions that involve trading partners in other time zones.
Not all banks are expected to change their back-office operations to accommodate an 18-hour day, but officials said that many must do so to remain competitive.
"There are billions of dollars in everyday yen activity that does not get finally settled until the close of Fed Wire," said Donald Hollis, president of DRH Strategic Consulting Inc., Chicago.
"If there is a crisis in Japan and the New York market is not open, you have the potential for Herstatt all over again," he said, referring to Germany's Bankhaus Herstatt, whose failure in 1974 caused major losses for many of its foreign exchange trading partners.
