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F ederal reserve Bank of Dallas
DALLAS, TEXAS

75222

C ir c u l a r No. 78-6
J a n u a r y 17, 1978

PLANS TO IMPROVE PAYMENTS SERVICES

TO ALL BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
T h e Board of G o v e r n o r s of th e F e d e ra l R e s e r v e System h a s a n n o u n c e d
p la n s to im prove nationw ide settlem ent s e r v i c e s for B an k w ire f u n d s t r a n s f e r s
a nd among automate d c l e a r i n g h o u s e s (A C H s), a n d invites comments. T h e
B o a r d 's p r e s s re le a s e a n d FEDERAL REGISTER d oc u m e n t, w hich a r e e n clo se d ,
p r o v id e th e d e ta ils .
For those who may w ish to r e s p o n d , y o u r comments a r e r e q u e s t e d by
F e b r u a r y 28, 1978.
If you ha ve q u e s tio n s with r e g a r d to th e p ropo sa l on B a n k w ir e s e ttle ­
m e n ts , p le a se contact Mr. E. W. V o rlo p , J r . , Ext. 6223. For more information
a b o u t ACH s e tt le m e n ts , call Mr. C. J . P ic k e r i n g , Ext. 6294.
S in c e r e ly y o u r s ,
R ob ert H . Boykin
F i r s t Vice P r e s i d e n t

E n c lo s u re

Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-800 -492 -440 3 (intrastate) and 1-8 00 -527 -497 0 (interstate). For calls placed locally, please use 651 plus
the extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

E x tract From
FEDERAL REGISTER,
VOL. 43, NO. 3,
T h u r s d a y , J a n u a r y 5, 1978
p p . 1005 - 1007

[6210- 01 ]
[ D o c k e t N o .J l- 0 1 3 8 ]
NET SETTLEMENT OF MEMBER BANK RESERVE
ACCOUNTS AND AUTOMATED CLEARING
HOUSES
A n n o u n c e m e n t o f P r o p o s e d A c tio n s

SUMMARY
STATEMENT:
The
Board of Governors has announced its
intention to take two actions regard­
ing its funds transfer and clearing ser­
vices. The first action is the approval
of a request from a group of member
banks participating in a private clear­
ing and settlem ent organization that
Federal Reserve Banks make available
to them a net settlem ent service for
their funds transfer messages. In the
second action, the Board has approved
plans to provide, by year end 1978, in­
terregional clearing and settlem ent

services tor funds transfers originated
at automated clearing house associ­
ations. The Board i s tends to take
these actions in order to improve the
efficiency of th e nation’s payments
mechanism and to encourage privatesec tor development of electronic pay­
ments services for th e public. The
Board has invited public comment on
these actions by February 28, 1978.
FOR FURTHER INFORMATION
CONTACT:
James R. Kucflinski, Director, Divi­
sion of Federal Reserve Bank Oper­
ations, 202-452-3985; or Allen L.
Raiken, Assistant General Counsel,
202-452-3625, Board of Governors of
the Federal Reserve System, Wash­
ington, D.C. 20551.
I. I n t e r -D is t r ic t N et S e t t l e m e n t by
F ederal R eser v e B a n k s fo r M em b er
B anks

The Board of Governors has consid­
ered a request from an organization of
member banks that Federal Reserve
assistance be provided to member
banks participating in an independent
privately owned organization provid­
ing interbank funds transfer services.
The member banks participating in
this organization have requested assis­
tance from the Federal Reserve
System in an arrangement to use their
reserve account balances at Federal
Reserve Banks to settle for payment
transactions that have been ex­
changed through a private clearing or­
ganization known as the Bankwire to
which these member banks belong.
Bankwire is operated by the Payment
St Administrative Communications
Corp., a privately owned corporation.
The proposed arrangement would
allow the Federal Reserve member
banks in this organization, during
daily operations, to transfer among
themselves
payment
instructions
throughout the country via Bankwire
and then to settle for those funds
transfers on that same day using the
Federal
Reserve
Communications
System to make appropriate adjust­
ments to member bank reserve ac­
count balances.
The member banks participating in
the Bankwire organization have indi­
cated that significant efficiencies in
their current clearing and settlem ent
services will be achieved through the
receipt of the net settlem ent service
requested. The proposed net settle­
ment service would consist of Federal
Reserve Banks making debit and
credit entries to the reserve accounts
of member banks that are members of
Bankwire. Bankwire would be appoint­
ed the agent of the participating
member banks, and would be responsi­
ble for providing a designated Federal
Reserve office with a list of debit and
credit settlem ent instructions neces­
sary to effect the net settlem ent. Upon

obtaining this Information, which
would be received through a link-up of
the Federal Reserve Communications
System and the Bankwire system, the
designated Federal Reserve office
would distribute the accounting en­
tries to the Federal Reserve Banks for
posting to the reserve accounts of the
participating member banks. This
posting would represent the net
amount “due from” or "due to” the
member bank resulting from payment
transactions exchanged that day
through the Bankwire system.
For some time the Federal Reserve
has provided settlem ent services for
member banks that, within individual
Federal Reserve Districts, participate
in privately run local and regional
clearing organizations by charging and
crediting net entries to the member
banks’ reserve accounts. The proposed
settlem ent service differs from such
existing services in that it will be of­
fered on an inter-District, rather than
on an intra-District basis. The Board
perceives that adoption of this propos­
al will enhance the settlem ent services
that it offers to member banks. The
Board expects that the availability of
these settlem ent services will facilitate
member bank participation in privatesector payments clearing arrange­
ments and will result in same-day
funds availability for member banks
participating in this private-sector
clearing organization. The Board views
these services as consistent with the
Federal Reserve System ’s commitment
to provide assistance to private sector
initiatives directed toward improving
the efficiency of the nation’s pay­
ments mechanism. Providing this net
settlem ent service should permit the
Bankwire organization and its member
banks to offer improved funds transfer
services to the public.
Should other requests by member
banks for specialized settlem ent ser­
vices be received in the future, the
Board will review these requests on a
case-by-case basis considering among
other matters overall System capabili­
ties and consistency with the Federal
Reserve’s traditional payments mecha­
nism responsibilities.
II.

I n te r r e g io n a l C le a rin g an d S e t­
tle m e n t S e rv ic e s T h ro u g h A u to ­
m a te d C le a r in g H o u s e s

On th e basis of its review of the re­
cently completed pilot study, the
Board of Governors has determined
that it is appropriate for th e Federal
Reserve System to establish an Inter­
regional Automated Clearing House
system. The Board believes that inter­
regional clearings will facilitate the
development of a more efficient na­
tionwide payments system available to
depository Institutions and will pro­
vide research and development data
and experience that should be of assis­
tance to other potential developers of

automated clearing services. Provision
of this interbank service also should
enhance the opportunities open to de­
pository institutions for developing
improved "retail” payments services
for the public. The Board intends to
have the Federal Reserve interre­
gional ACH system operational by the
end of 1978.
Since 1968 the Federal Reserve
System has assisted groups of deposi­
tory institutions in the development
and operation df automated clearing
houses (ACHs) that provide facilities
for the exchange of payment informa­
tion on magnetic tape (1976 Fed. Res.
Bull. 481). These facilities were devel­
oped as a means of reducing the grow­
ing volume and increased cost of pro­
cessing paper checks. At the present
time, the Federal Reserve provides
processing, settlem ent and delivery
services on a regional basis for 31 auto­
mated clearing house associations and
makes available settlem ent and deliv­
ery services for two privately operated
ACHs. These facilities are also used in
connection with the Federal Reserve’s
participation as fiscal agent in the
Federal Government’s recurring pay­
ments program. At the present time
the major portion of Federal Reserve
System ACH transactions consist of
direct deposit and other funds trans­
fers for the United States Treasury.
In 1976, the National Automated
Clearing House Association (NACHA)
requested Federal Reserve participa­
tion in a pilot study to determine the
feasibility of handling inter-District
ACH items over the Federal Reserve
Communications System. Ten ACHs
participated in the interregional pilot.
Depository institutions belonging to
th e participating ACH associations re­
ceived instructions from corporate cus­
tomers to pay out or collect funds
from customers who elected to partici­
pate in the program. Generally, under
the pilot, the instructions were for the
collection of insurance payments and
for Income payments. The customers
deposited these instructions on mag­
netic tape with their local Federal R e­
serve clearing and settlem ent facility,
and the instructions were transmitted
to the receiving facility using the Fed­
eral Reserve Communications System.
T he receiving Federal Reserve ACH
facility processed and delivered the
instructions to the appropriate deposi­
tory institutions for debiting and cred­
iting to the accounts of their custom­
ers. Settlem ent for the funds trans­
ferred was through the reserve ac­
counts of member banks.
The feasibility and potential bene­
fits of a nationwide'ACH facility has
been demonstrated in the Treasury’s
direct deposit program and in the pilot
test of interregional commercial pay­
ments. T he Board believes that the
probable long ran efficiencies result­
ing from interconnection of all operat­

ing ACH facilities justify the Board’s
action at this time to provide these
services to the Tresury, member
banks, and other members of ACH as­
sociations. Moreover, the Board re­
gards its action to interconnect the
current regional ACH facilities as a re­
search and development program that
will provide technical data and experi­
ence in the operation of nationwide
ACH facilities. The Federal Reserve
System intends to make this Informa­
tion available to those in the private
sector interested in the development
of alternative systems.
The Board intends to continue to
reevaluate Federal Reserve participa­
tion in the ACH program in order to
assure that its actions remain consis­
tent with its payment mechanism re­
sponsibilities. In this regard, the
Board views its participation in a na­
tionwide ACH facility providing ser­
vices to member banks, other deposi­
tory institutions and the U.S. Trea­
sury as an appropriate activity. The
Board has carefully considered the
report of the National Commission on
Electronic Fund Transfers to the
President and Congress with regard to
th e Federal Reserve’s role In the de­
velopment of ACH systems. The
Board’s participation in a national
ACH system for depository institu­
tions was specifically considered by
the Commission and was determined
to be a proper action for the Federal
Reserve (Final Report—
National Com­
mission on Electronic Fund Transfers
(1977), p. 214). In addition, upon
review of the results of the interre­
gional pilot, the National Automated
Clearing House Association, comprised
of 9,000 member and nonmember
banks and 1,000 thrift institutions of­
fering ACH retail payment services to
their customers, has requested that
the Federal Reserve take action to in­
terconnect local ACH facilities nation­
wide in order to provide financial de­
pository institutions with access to a
basic level of automated clearing and
settlem ent nationwide, as in the check
system.
T he technical procedures and time
schedule employed in the pilot test of
interregional clearing and settlem ent
are expected to serve as the model to
be used in providing such service na­
tionwide. The longer-term objective, is
to provide a clearing and settlem ent
system that is more efficient than the
'check system. The Board anticipates
that Reserve Banks will work closely
with the national and the local ACH
associations in implementing interre­
gional ACH services as it believes such
cooperative efforts are necessary and
have been successful In the past.
Currently, member banks and mem­
bers of automated clearing house asso­
ciations, including thrift Institutions,
may utilize the ACH clearing and set­
tlem ent facilities operated by Reserve

Banks locally in 31 regions for com­
mercial payments. T h e procedures de­
scribed in T reasury regulations for th e
delivery of government paym ents n a ­
tionwide by Reserve Banks are n ot af­
fected by today’s announcem ent.
In a related m atter, th e Board is
continuing to develop a regulatory
framework for Federal Reserve Bank
ACH clearing and settlem ent oper­
ations th a t will accomodate cu rren t
ACH arrangem ents. The proposed
S ub p art C to Regulation J has been
revised since its most recent publica­
tion for comm ent in Ja n u a ry 1976 (30
F R 32952 and 41 F R 3097) when it was
proposed along w ith S ubpart B to th a t
Regulation. Su bp art B was adopted by
th e Board in Septem ber 1977 (42 FR
31763). T he Board intends to repub­
lish th e proposed S u b part C in revised
form for public comment in th e near
future.
To aid th e Board in its final consid­
eration of these plans, interested p e r­
sons are invited to subm it comments,
views or argum ents. Any such material
should be subm itted in writing to the
Secretary, Board of Governors of th e
Federal Reserve System, W ashington,
D.C. 20551, to be received no t later
th a n F ebruary 28, 1978. Such m aterial
will be made available for inspection
and copying upon request except as
provided in § 261.6(a) o f-th e B oard’s
rules regarding availability of inform a­
tion.
Board of Governors of th e Federal
Reserve System, December 23, 1977.
T h e o d o re E. A lliso n ,

Secretary o f the Board.
[ F R Doc. 78-110 F iled 1-4-78; 8:45 am ]

FEDERAL
press

RESERVE

r e I e ct s e

‘vf*AL R t ^

For immediate release

December 27, 1977

The Board of Governors of the Federal Reserve System today invited
comment on plans to enhance and improve payments services to financial
institutions and the public.
The Board requested comment by February 28, 1978.
These plans are expected to encourage private sector development
of competitive payments services and to encourage broader use of electronic
fund

transfers as a more efficient, lower cost means of payment.
The two programs on which the Board invited comnent are:
1.

To make available Federal Reserve net settlement services to

member banks, on their reserve accounts, for wire transfers conducted on
Bankwire.
Bankwire is a conmunications network operated by Payments and
Communications Administrative Communications Corporation and owned by an
association of banks.

It provides interbank funds transfer services to

about 200 banks throughout the country.
2.

To provide a nationwide Federal Reserve service for clearing

and settlement of electronic payments through automated clearinghouses
(ACH's).

An automated clearinghouse association is a local or regional
association of banks and other depositories agreeing to make and receive
electronic payments among themselves on behalf of the customer.

The Federal

Reserve currently operates 33 automated clearinghouses where magnetic tapes

-2bearing the payments instructions of members of the local clearinghouse
associations are sorted and cleared.

At present, payment instructions are

exchanged generally only locally among members of the various regional
clearinghouse associations.
Use of these electronic payments systems would be voluntary.
In making these proposals the Board said:
"We expect that the program to carry out net settlement for
Bankwire transactions will stimulate private sector alterna­
tives in the payments mechanism leading to lower cost
provision of banking services throughout the nation. The
Board will consider other requests for such settlement
services on a case- by -case basis to ensure that the cost
and operational impacts and the public service benefits
are consistent with the Board's overall responsibilities.
"With respect to providing interregional clearing and
settlement facilities for ACH's, we hope to encourage the
use of electronic fund transfers as a more efficient and
less costly alternative to check payments. The Board
recognized the evoluti onary nature of the program and
the need for continuing analysis of Federal Reserve
operational involvement.
However, we would emphasize
the compatibility of this program with the traditional
wholesale ievsl services which the Federal Reserve has
provided historically. We have basic responsibilities to
provide a miniajum service capability to the public and to
ensure the certainty and reliability of payments as well
as to encourage improved methods of meeting the credit and
debit transfers of the public. Our payments system is
important to the smooth functioning of the whole economy.
Not least, we attach importance to the fact that this
project hag been recommended by the National Commission
on Electronic fund Transfers."
The terms of the project under which the Federal Reserve would
settle wire transfers made over Bankwire were based on a request to the
Federal

Reserve by member banks participating in Bankwire.

terns,member banks would appoint Bankwire their

Under these

agent, and settlement would

J

-3 -

be effected by crediting or debiting member bank reserve accounts.

Bankwire

would be responsible for supplying information needed for settlement:

net

amounts to be credited or debited to participating member banks, in
accordance with payment instructions received during the day on Bankwire
from all Bankwire members.
The planned connection of automated clearinghouses to form a
national network was based on a request by the National Automated Clearing
House Association —

comprised of some 9,000 member and nonmember banks,

and 1,000 thrift institutions.
Under the planned linkage a member bank or other financial
institution in the Dallas automated clearinghouse association, for example,
could present to the Federal Reserve automated clearinghouse at Dallas
electronically recorded instructions to make a payment to a member of the
San Francisco clearinghouse association.

The Federal Reserve would -- as

it does with payments instructions recorded on checks -- forward the instruc­
tions from Dallas to San Francisco.

But ACH transactions would be forwarded

over the Federal Reserve's communications system, rather than by mail or
courier.

The Federal Reserve would collect the amount involved from the

Dallas depository and pay the amount to the San Francisco depository.

The

Dallas and San Francisco depositories would credit or debit their customers.
The feasibility of connecting these facilities has been shown
in two recent programs.

One is the Treasury's program of direct deposit

of social security and other recurring Federal payments.

In place of

sending out checks, the Treasury -- at the request of beneficiaries -- will
send their payments directly to depository institutions through automated
clearing facilties operated by Reserve Banks.

V

-4 More recently, the feasibility of interregional commercial payments
through the automated facility was tested during a nine-month pilot test
conducted by the National Automated Clearing House Association and the
Federal Reserve.
Today's proposal does not alter the Treasury's procedures in its
direct deposit program.
The text of the plans on which the Board invited comment is attached.

-

0

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102