WASHINGTON - The Federal Reserve Board on Wednesday eased its Fed Wire transfer rules to free banks from approving each transaction carried out by a third party.
The move is expected to reduce the regulatory burden and save banks money.
The central bank said institutions can set daily limits for all transactions conducted by third parties. That's how banks currently handle transfers processed through companies they own.
For example, a bank could set a $10 million daily limit to cover six transactions completed through third parties, rather than approving each individual deal.
"The Fed has liberalized some conditions and clarified others," said Robert Ballen, a partner at Schwartz & Ballen in Washington. "This is very welcome. These arrangements promote efficiency and have become particularly important as banks attempt to consolidate operations."
The Fed said the Fed Wire changes were interim fixes, pending the outcome of a broader policy review.
Also on Wednesday, the Fed expanded the Fed Wire closing time for securities transfers. All transfers must be sent by 3:15 p.m., 45 minutes later than now required. Bankers then would have until 3:30 p.m. to return transfers sent by mistake.
Finally on Wednesday, the Fed proposed new safeguards for the automated clearing house system, which is used for direct deposit and other payments. The proposed rules require: bank board approval of all contracts with third-party ACH providers, annual compliance audits, and periodic banking agency reviews. Comments on the plan are due Nov. 9.
The Fed imposed numerous restrictions on third-party providers during the early 1980s, aimed at limiting the provider's access to the bank's Fed account. Regulators feared a third-party would wipe out the account, which is used to settle Fed Wire transactions.
Also included in its final Fed Wire transfer regulation, the Fed said it will no longer prevent a bank's top Fed Wire official from making credit decisions at affiliated banks.
The central bank also killed a requirement that each institution's board of directors review every agreement with private third parties. Instead, the board must retain broad oversight of the contracts.
To buy some time, the Fed ordered banks to table any plans to move their Fed Wire operations out of the country. The central bank said it wants to study the risk posed by such moves.