WASHINGTON -- The Federal Reserve on Wednesday proposed revising its payments system risk policy, saying the changes would cut the regulatory burden on lenders.
The Fed proposed simplifying the way banks calculate their "net debit cap," or limits on daylight overdrafts in their Fed accounts. It also proposed publishing a short overview of its payments system risk policy plan, for use by smaller banks that are not required to set a debit cap.
"We really believe this will simplify the procedures," said Wayne Angell, the Fed governor who oversees payment system policies.
Large banks that use Fed Wire frequently are currently required to set a limit on their daylight overdrafts, based on three assessment factors: creditworthiness, intraday funds management, and customer credit policies.
The Fed's new plan would simplify the way banks gauge the first of these factors. This factor would be determined by a simple matrix based on a lender's prompt corrective action capital category and supervisory rating.
A Fourt Component
Under the new rules, the Fed predicts that about 54% of banks would retain their current cap rating, 26% would be eligible for an upgraded cap, and 20% would have their caps downgraded. But it predicted that even the lower caps would not constrain bank activity.
Although the Fed said it wanted to ease the burden on banks, the proposal does include one step that will increase it. The board proposed that a fourth component - operating controls and contingency procedures - be added to the assessment procedures that determine lenders' net debit caps. If approved, the fourth factor would not take effect until Jan. 1, 1995.
The Fed has proposed this move "because the potential losses that depository institutions could incur as a result of fraud could be large, and because operating outages experienced by major payment system participants could disrupt markets," a staff memo said.
In the board meeting Wednesday, Mr. Angell said the Fed is anxious to move to a more market-based system for daylight overdrafts, instead of relying on quantitative caps.
"This is an interim arrangement," he said. "We hope to move in to a more market-driven daylight credit allocation program."
The board unanimously approved the proposal.