The Federal Reserve Board has approved an expanded policy statement that clarifies risk-control standards for multilateral netting systems.

The policy incorporates the minimum standards in the Lamfalussy Report, a 1990 study by the Bank for International Settlements on ways to reduce risk in payment systems.

The Fed's policy, essentially the same as it had proposed in July, applies to privately operated, multibank clearing systems for large-value transactions, such as the Clearing House Interbank Payments System, or Chips.

"We're happy with what they decided to do," said George Thomas, senior vice president of the New York Clearing House Association, which operates Chips. "It was consistent with what our comment letter said."

The policy's threshold criteria are systems of three or more participants that net payments or foreign exchange contracts in U.S. dollars. The policy also covers any system with an aggregate daily value of net settlement credits or debits exceeding $500 million, or an average daily transaction dollar value of over $100,000, "calculated over a 12- month period corresponding to the most recent fiscal year for the netting system," the Federal Reserve Board staff said.

Aside from the New York Clearing House, the policy would encompass the proposed Multinet International Bank, New York, and the Exchange Clearing House Organization, or Echo, a London-based multinational banking consortium.

In such arrangements, banks can streamline operations and reduce financial exposure by aggregating their debits and credits, and then settling with each other on the net amounts.

"We think (the Fed has made) a good move," said Larry Recknagel, president of International Clearing Systems Inc., which will run Multinet. "The Lamfalussy standards are really a minimal baseline that you ought to be living up to if you are going to be in the business of multilateral payments."

One of the minor changes to the original Fed proposal was that lower- dollar batch processing systems, such as check and automated clearing houses, do not fall under the Lamfalussy standards - at least for the time being.

The Fed received several comment letters noting that the National Organization of Clearing Houses and the National Automated Clearing House Association recently had formed a joint task force to look at developing risk controls and to evaluate private-sector settlement risk. The task force expects to complete a report within six months.

In the comment letter from the American Bankers Association, Phillip Corwin, director of operations and retail banking, explained why the Lamfalussy standards should not apply to checks and automated clearing house payments.

"Reader-sorters and other check-processing equipment lack the overhead processing capacity to monitor credit limits and reject individual payment orders which would violate the limits," Mr. Corwin wrote.

But a Fed official said the board will "continue to study the application of minimum standards to those arrangements."

"Application of the policy statement to such arrangements will cover more completely the range of multilateral netting systems involving settlements in U.S. dollars that have the potential to increase systemic risk in the financial markets," the Federal Reserve staff said.

In a related move, the Fed governors voted to delay expansion of Fed Wire operating hours until after a new messaging format is in place.

The Fed voted to delay the wire's expansion to an 18-hour day until the fourth quarter of 1997 to give banks time to modify their systems to the new format, which includes more payment-related information.

"We had gotten requests from banks, both in their comments on the proposed Fed Wire format and subsequent to that stage," to adopt the new format before extending the hours, a Fed official said.

The move to expanded hours makes the Fed's funds transfer service overlap with the operating hours of overseas central banks, thereby reducing risks that might arise from the time lag in intercontinental trades.

The Fed staff said it was "sensitive" to the concerns banks raised, but said the board had weighed that consideration against the advantages of reducing risk. "We think we have struck a good balance," the Fed said.

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