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Federal Reserve Bank OF DALLAS TO N Y J . SA L V A G G tO DALLAS, TE X A S 7 5 2 6 5 -5 9 0 6 FIR S T V IC E PR E S ID E N T June 14, 1994 Notice 94-59 TO: The Chief Operating Officer of each financial institution in the Eleventh Federal Reserve District SUBJECT Interpretation of the Payments System Risk Reduction Policy; Daylight Overdrafts of Government-Sponsored Enterprises DETAILS As part of its payments system risk reduction program, the Board of Governors of the Federal Reserve System is adopting an interpretation of its Policy Statement on Payments System Risk. Under the payments system risk reduction program, governmentsponsored enterprises that maintain accounts at Reserve Banks should not incur daylight overdrafts in these accounts and are not permitted to adopt a positive daylight overdraft net debit cap. Furthermore, the Board interprets the Policy Statement on Payments System Risk to include government-sponsored enterprises under the policy on daylight overdraft fees. Until October 13, 1994, fees on daylight overdrafts in accounts of government-sponsored enter prises will be waived. A temporary exemption from daylight overdraft fees is granted for daylight overdrafts in principal and interest accounts of govern ment-sponsored enterprises. This interpretation supports the Bo ar d’s payments system risk reduction program by providing a comprehensive policy toward daylight overdrafts incurred by government-sponsored enterprises. The inter pretation also recognizes the unique nature of the fiscal agency relationship between the Federal Reserve and these entities. The interpretation became effective April 28, 1994. ATTACHMENT A copy of the Bo ar d’s notice as it appears on pages 25060-62, Vol. 59, No. 92, of the Federal Register dated May 13, 1994, is attached. For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) MORE INFORMATION For more information, please contact Donna Gonzalez at (214) 922-5584 or James Smith at (214) 922-5585. For additional copies of this B a n k ’s notice, please contact the Public Affairs Department at (214) 922-5254. Sincerely, INTERPRETATION OF THE PAYMENTS SYSTEM RISK REDUCTION POLICY; OVERDRAFTS OF GOVERNMENT-SPONSORED ENTERPRISES 25060 Federal Register / Vol. 59, No. 92 / Friday, May 13, 1994 / Notices FEDERAL RESERVE SYSTEM Interpretation of the Payments System Risk Reduction Policy; Daylight Overdrafts of Government-Sponsored Enterprises Board of Governors of the Federal Reserve System. AGENCY: ACTION: I n t e r p r e t a t i o n . Federal Register / Vol. 59, No. 92 / Friday, May 13, 1994 / Notices As part of its payments system risk reduction program, the Board is adopting an interpretation of its Policy Statement on Payments System Risk. Under the payments system risk reduction program, governmentsponsored enterprises that maintain accounts at Reserve Banks should not incur daylight overdrafts in these accounts and are not permitted to adopt a positive daylight overdraft net debit cap. Furthermore, the Board interprets the Policy Statement on Payments System Risk to include governmentsponsored enterprises under the policy on daylight overdraft fees. Until October 13,1994, fees on daylight overdrafts in accounts of government-sponsored enterprises will be waived, A temporary exemption from daylight overdraft fees is granted for daylight overdrafts in principal and interest accounts of government-sponsored enterprises. This interpretation supports the Board’s payments system risk reduction program by providing a comprehensive policy towards daylight overdrafts incurred by government-sponsored enterprises while at the same time recognizing the unique nature of the fiscal agency relationship between the Federal Reserve and these entities. DATES: Effective April 28, 1994. Reserve Banks issue and redeem the GSEs’ debt and asset-backed securities over the Fedwire system, in addition to providing other payment services generally related to these fiscal agency services. The Board’s payments system risk (PSR) policies and guidelines have addressed daylight overdrafts by government-sponsored enterprises that maintain accounts with Federal Reserve Banks only in certain limited instances. In 1985, the Board determined that Federal Home Loan Banks should not be allowed a positive net debit cap and should be discouraged from incurring daylight overdrafts in their accounts with the Reserve Banks. In June 1986, the Board similarly determined that the Farm Credit System Banks should be discouraged from incurring overdrafts. The Board has never addressed daylight overdrafts of other GSEs, including those for which the Reserve Banks act as fiscal agents in issuing and redeeming their securities. Further, when the Board approved in 1992 the policy of charging fees for daylight overdrafts beginning in April 1994, it did not address the question of whether GSEs would be subject to the fees. However, the policy did not exclude GSEs or any other class of accountholders from the fees.1In addition, in FOR FURTHER INFORMATION CONTACT: 1994, the Board adopted a penalty fee Jeffrey C. Marquardt, Assistant Director for daylight overdraft incurred by (202/452-2360), Paul Bettge, Manager institutions that do not have regular (202/452-3174), Division of Reserve Bank Operations and Payment Systems; discount window access, although GSEs Stephanie Martin, Senior Attorney (202/ were not included in this penalty fee policy. 452-3198), Legal Division; for the The Federal Reserve is not obligated hearing impaired only: to provide intraday credit to the GSEs in Telecommunications Device for the the form of daylight overdrafts as part of Deaf, Dorothea Thompson (202/452 its fiscal agency functions; indeed, the 3544). GSEs have generally agreed not to incur SUPPLEMENTARY INFORMATION: overdrafts in their accounts. However, many of the GSEs have nonetheless Background incurred daylight overdrafts. The Board The term “government-sponsored believes that, with the advent of enterprise” (GSE) is generally used to daylight overdraft fees for depository refer to corporations chartered by institutions on April 14,1994, it is Congress to perform certain financial particularly important that the GSEs not market functions deemed to be in the be permitted unlimited free access to public interest. These entities include, intraday Federal Reserve credit. Such but are not limited to, the Federal access would represent a benefit not National Mortgage Association (Fannie available to depository institutions and Mae), the Federal Home Loan Mortgage could serve to undermine the Board’s Corporation (Freddie Mac), the Student payment system risk reduction program. Loan Marketing Association (Sallie As a result, the Board interprets the Mae), and entities of the Federal Home Policy Statement on Payments System Loan Bank System and the Farm Credit Risk to include GSEs under the policy System. These GSEs are owned by on daylight overdraft fees. In addition, private shareholders and their the Board has determined that a capitalobligations are not guaranteed by the based fee deductible, as permitted for U.S. government. Congress authorized the Reserve 1The Board’s policy statement on daylight Banks to act as depositaries, custodians, overdraft fees states that “each Reserve Bank will and fiscal agents for these entities. charge a fee for average daily daylight overdrafts in Federal Reserve accounts lemoha«5e - J ied j.” Under agreements with the GSEs, the SUMMARY: 25061 depository institutions, will not be permitted for the GSEs. These entities do not have regular access to the discount window and should not be permitted the same access to intraday credit as depository institutions. However, because a number of these entities have not been formally subject to the PSR policy in the past and have not previously been explicitly advised that daylight overdraft fees would apply to their accounts, the Board has determined that they should be afforded some period within which to make the necessary adjustments to their payment systems and practices. As a result, daylight overdraft fees for daylight overdrafts in GSEs’ accounts will be waived until October 13,1994. Furthermore, the Board recognizes that, in large part, the GSEs’ daylight overdrafts are related to regular payments of principal and interest (P&I) on securities that they issue through the Federal Reserve. These payments are initiated by the Reserve Banks, and the Federal Reserve’s daylight overdraft posting rules specify that these payments will be made before 9:15 a.m. Eastern time. These posting times were primarily designed to grant depository institutions the benefit of P&I payments prior to debits being made to their accounts from their purchases of new issues of government securities. The GSEs typically do not fund debits to their accounts resulting from P&I payments until they issue new securities later in the day, causing daylight overdrafts in their Federal -Reserve accounts. To eliminate these daylight overdrafts, the Reserve Banks could delay making P&I payments on the GSEs’ securities until sufficient funds were available in their accounts. This would likely require that the P&I payments be made later in the day. Delaying the P&I payments might increase the magnitude and duration of daylight overdrafts for the depository institutions that receive the corresponding credits. For this reason, the Board is permitting a temporary exemption of overdrafts incurred in GSEs’ P&I accounts (special accounts which are used only for the payment of principal and interest), until the potential benefits and drawbacks of shifting the timing of P&I payments can be analyzed. This analysis will be performed once the initial impact of daylight overdraft fees on depository institutions has been assessed. In addition, the Board has not ruled out future application of the daylight overdraft penalty fee to GSEs' daylight overdrafts. 25062 Federal Register / Vol. 59, No. 92 / Friday, May 13, 1994 / Notices Interpretation of the Policy Statement of the Board’s Regulation Y (12 CFR A. Federal Reserve Bank of St. Louis (Randall C. Sumner, Vice President) 411 225.23(a)(2) or (f)) for the Board’s on Payments System Risk Locust Street, St. Louis, Missouri 63166: approval under section 4(c)(8) of the Under the Board’s payments system 1. Community First Financial Group, Bank Holding Company Act (12 U.S.C. risk reduction program, governmentInc., English, Indiana; to acquire at least 1843(c)(8)) and § 225.21(a) of Regulation sponsored enterprises that maintain 17.50 percent of the voting shares of The Y (12 CFR 225.21(a)) to acquire or accounts at Reserve Banks should not New Washington State Bank, New control voting securities or assets of a incur daylight overdrafts in these company engaged in a nonbanking accounts and are not permitted to adopt Washington, Indiana. Board of Governors of the Federal Reserve activity that is listed in § 225.25 of a positive daylight overdraft net debit System, May 9,1994. Regulation Y as closely related to cap. Furthermore, the Board interprets W illia m W. W iles* banking and permissible for bank the Policy Statement on Payments Secretary o f the Board. holding companies. Unless otherwise System Risk to include governmentnoted, such activities will be conducted [FR Doc. 94-11648 Filed 5-12-94; 8:45 am] sponsored enterprises under the policy throughout the United States. on daylight overdraft fees. A capitalBILLING CODE 6210-01-F based fee deductible is not permitted for The application is available for government-sponsored enterprises. immediate inspection at the Federal First Bancshares of Texas, Inc.; However, a temporary exemption from Reserve Bank indicated. Once the Change in Bank Control Notice daylight overdraft fees is granted for application has been accepted for daylight overdrafts in principal and processing, it will also be available for Acquisition of Shares of Banks or interest accounts of governmentinspection at the offices of the Board of Bank Holding Companies sponsored enterprises. Fees on daylight Governors. Interested persons may overdrafts in accounts of governmentThe notificant listed below has express their views in writing on the sponsored enterprises will be waived applied under the Change in Bank question whether consummation of the until October 13,1994. Control Act (12 U.S.C. 1817 (j)) and proposal can “reasonably be expected to By order of the Board of Governors of the § 225.41 of the Board’s Regulation Y (12 produce benefits to the public, such as Federal Reserve System, May 9,1994. CFR 225.41) to acquire a bank or bank greater convenience, increased W illiam W . W iles, holding company. The factors that are competition, or gains in efficiency, that considered in acting on notices are set Secretary o f the Board. outweigh possible adverse effects, such forth in paragraph 7 of the Act (12 [FR Doc. 94-11646 Filed 5-12-94; 8:45 am] as undue concentration of resources, U.S.C. 1817(j)(7)). decreased or unfair competition, BILLING CODE 6210-01-P The notice is available for immediate conflicts of interests, or unsound inspection at the Federal Reserve Bank banking practices.” Any request for a Community First Financial Group, Inc.; indicated. Once the notice has been hearing on this question must be accepted for processing, it will also be Formation of, Acquisition by, or accompanied by a statement of the available for inspection at the offices of reasons a written presentation would Merger of Bank Holding Companies the Board of Governors. Interested not suffice in lieu of a hearing, The company listed in this notice has persons may express their views in identifying specifically any questions of applied for the Board’s approval under writing to the Reserve Bank indicated fact that are in dispute, summarizing the section 3 of the Bank Holding Company for the notice or to the offices of the Act (12 U.S.C. 1842) and § 225.14 of the Board of Governors. Comments must be evidence that would be presented at a hearing, and indicating how the party Board’s Regulation Y (12 CFR 225.14) to received not later than June 2,1994. commenting would be aggrieved by become a bank holding company or to A. Federal Reserve Bank of Dallas approval of the proposal. acquire a bank or bank holding (Genie D. Short, Vice President) 2200 company. The factors that are Comments regarding the application North Pearl Street, Dallas, Texas 75201 considered in acting on the applications 2272: must be received at the Reserve Bank are set forth in section 3(c) of the Act indicated or the offices of the Board of 1. First Bancshares of Texas, Inc., (12 U.S.C. 1842(c)). Employee Stock Ownership Plan, Governors not later than June 6,1994. The application is available for Tomball, Texas; to acquire 0.33 percent A. Federal Reserve Bank of St. Louis immediate inspection at the Federal for a total of 19.57 percent of the voting (Randall C. Sumner, Vice President) 411 Reserve Bank indicated. Once the shares of The First National Bank, Locust Street, St. Louis, Missouri 63166: application has been accepted for Altanta, Texas, and thereby indirectly 1. First Banks, Inc., St. Louis, processing, it will also be available for acquire The Hamilton National Bank, Missouri; to acquire St. Charles Federal inspection at the offices of the Board of Hamilton, Texas, and Bank of Tyler, Bancshares, Inc., St. Charles, Missouri, Governors. Interested persons may Tyler, Texas. and thereby indirectly acquire St. express their views in writing to the Board of Governors of the Federal Reserve Charles Federal Savings and Loan Reserve Bank indicated for that System, May 9,1994. Association, St. Charles, Missouri, and application or to the offices of the Board W illiam W. W iles, thereby engage in acquiring and of Governors. Any comment on an Secretary o f the Board. operating a savings association, application that requests a hearing must [FR Doc. 94-11649 Filed 5-12-94; 8:45 am] pursuant to § 225.25(b)(9) of the Board’s include a statement of why a written Regulation Y. presentation would not suffice in lieu of BILUNG CODE 6210-01-F a hearing, identifying specifically any Board of Governors of the Federal Reserve questions of fact that are in dispute and System, May 9,1994. First Banks, Inc.; Acquisition of summarizing the evidence that would Company Engaged in Permissible W illiam W . W iles, be presented at a hearing. Nonbanking Activities Secretary o f the Board. Comments regarding this application [FR Doc. 94-11650 Filed 5-12-94; 8:45 am' must be received not later than June 6, The organization listed in this notice 1994. BILUNG CODE 6210-01-F has applied under § 225.23(a)(2) or (f)
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