View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Federal R eserve Bank
OF DALLAS
W ILLIA M

H. W ALLACE

FIRST VIC E PR E S ID E N T

May

21 , 1990

d a lla s

,t e x a s

75222

AND CH IE F O PER ATING O FFIC ER

Circular 90-31
TO:

The Chief Operating Officer of
each financial institution in the
Eleventh Federal Reserve District
SUBJECT
Request fo r public comment on proposals to require telephone
n o tific a tio n to o f f lin e receiving in s titu tio n s o f incoming
tran sfe rs o f funds
DETAILS

The Federal Reserve Board of Governors has issued for public comment
a proposal that the Federal Reserve Banks notify by telephone all offline
financial institutions of the receipt of incoming Fedwire funds transfers.
The proposed service would apply to all third-party funds transfers
and would also apply to settlement transfers if the receiving institution acts
as a correspondent for a respondent institution.
Telephone notice of settlement transfers to a receiving institution
that does not maintain accounts for respondent institutions would continue to
be an optional service. The fee for this service currently consists of a $4.00
per transfer surcharge in addition to the basic transfer fee and is charged to
the offline receiving institution.
Comment is requested by July 3, 1990.
become effective January 1, 1991.

The proposed service would

ATTACHMENTS

The Board’s press release providing the specifics of the proposal is
attached.
MORE INFORMATION

For more information, please contact Jonnie Miller at (214) 651-6290,
Vinton Myers at (214) 698-4349, or Larry Ripley at (214) 651-6118.
Sincerely yours,

For additional copies o f any circ u la r please co n ta c t the Public A ffa irs Department a t (214) 651-6289. Banks and others are
encouraged to use the fo llo w in g incom ing WATS numbers in c o n tacting th is Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).

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

FEDERAL RESERVE press release

For immediate release

April 30, 1990

The Federal Reserve Board today issued for public
comment a proposal that the Federal Reserve Banks notify by
telephone all off-line depository institutions of the
receipt of incoming Fedwire funds transfers.
Comment is requested by July 3, 1990.
The proposed service would apply to all
third-party funds transfers and would also apply to settle­
ment transfers if the receiving institution acts as a
correspondent for a respondent institution.
Telephone notice of settlement transfers to a
receiving institution that does not maintain accounts for
respondent institutions would continue to be an optional
service.

The fee for this service currently consists of a

$4 surcharge per transfer in addition to the basic transfer
fee and is charged to the off-line receiving institution.
The proposed service would become effective
January 1, 1991.
The Board's notice is attached.
-

Attachment

0-

FEDERAL RESERVE SYSTEM
(Docket R-0690)
Federal Reserve Bank Services
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Request for comment.

SUMMARY:

The Board is requesting comment on a proposal that

Reserve Banks notify telephonically all depository institutions
that do not have an electronic connection to Fedwire ("off-line
institutions") of the receipt of incoming Fedwire funds
transfers.

The service would apply to all third-party funds

transfers and to settlement transfers if the receiving
institution acts in a correspondent capacity for a respondent
institution.

Telephone notice of settlement transfers to a

receiving institution that does not maintain accounts for
respondent institutions would continue to be an optional service.
The fee for this service currently consists of a $4.00 surcharge
per transfer in addition to the basic transfer fee and is
assessed to the off-line receiving institution.

The Board

believes that this change would facilitate the prompt crediting
of beneficiaries and that notification of funds transfers
received over Fedwire is consistent with the participants'
expectation of Fedwire as a same-day payments system.
DATE:

Comments must be submitted on or before July 3, 1990.

ADDRESS:

Comments, which should refer to Docket No. R-0690, may

be mailed to the Board of Governors of the Federal Reserve
System, 20th and C streets, N.W., Washington, D.C. 20551,
Attention:

Mr. William W. Wiles, Secretary; or may be delivered

-

2

-

to Room B-222 3 between 8:45 a.m. and 5:00 p.m.

All comments

received at the above address will be included in the public
comments file, and may be inspected in Room B-1122 between 9:00
a.m. and 5:00 p.m.
FOR FURTHER INFORMATION CONTACT:

Louise L. Roseman, Assistant

Director (202/452-3874) or Julius Oreska, Manager (202/452-3878),
Division of Federal Reserve Bank Operations;
impaired only:

for the hearing

Telecommunications Device for the Deaf,

Earnestine Hill or Dorothea Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION:
The expectation of the parties to Fedwire third-party1
and settlement transfers is that payments will be completed on
the same day they are initiated.

On-line receivers of Fedwire

funds transfers are notified electronically of all transfers
received.

Because off-line receivers of Fedwire funds transfers

do not have an electronic connection with the Federal Reserve,
notification of incoming transfers to these institutions is not
necessarily made on the day of the transfer.

While off-line

receivers receive credit from their Reserve Bank on the day
transfers are received, the depository institutions are unable to
credit the beneficiary on the payment date unless they are

The term "third-party" funds transfer applies to all
regular funds transfers (type code 10) regardless of whether
these transfers include third-party information. Transfers
involving foreign accounts (type code 15) would also be subject
to the telephone notice requirement.

-

3

-

notified on the day of receipt.

Thus, from the standpoint of the

beneficiary, the transfer is not complete until notice of receipt
is provided.

Approximately forty-five percent of institutions

using Fedwire currently receive funds transfers off-line,
although off-line transfers account for less than one percent of
total Fedwire volume.
The Federal Reserve currently offers two optional
services by which Reserve Banks provide telephone notice to
off-line receivers of incoming funds transfers on the day of the
transfer.

These services help to ensure timely notification of

incoming funds for off-line institutions, in order that they may
make the funds available to their customers on a timely basis and
in order to receive timely information to manage their reserve
positions.

If the Reserve Bank does not provide telephone notice

of a transfer to an off-line institution, notification of the
incoming transfer accompanies the institution's daily account
statement, which is delivered either by courier or mail.

Courier

delivery occurs on the next business day; mail delivery usually
occurs one or more days after the transfer.
The service offered to off-line receiving institutions
is the "standing order" service.

Under this service, the off­

line receiver pays a surcharge to be notified telephonically of
each incoming funds transfer.

The Reserve Bank usually provides

notice within one hour of receipt of the transfer.

The receiving

ihstitution is assessed a surcharge per transfer (currently
$4.00) in addition to the basic transfer fee (currently $.50).

-

4

-

A second service, the "immediate advice" (type code 12)
service, enables the sender of the funds transfer to request that
the Reserve Bank notify telephonically the off-line receiving
institution of the receipt of a particular funds transfer.

The

sending institution identifies those transfers for which
telephone notice should be made by using a specific type code.
The sending institution is assessed the surcharge per transfer
for this service.
The Board is requesting comment on a proposal that
Reserve Banks notify telephonically all depository institutions
that do not have an electronic connection to Fedwire of the
receipt of incoming Fedwire funds transfers.

The service would

apply to all third-party funds transfers and to settlement
transfers if the receiving institution acts in a correspondent
capacity for a respondent institution.

Telephone notice of

settlement transfers to a receiving institution that does not
maintain an account for another institution would continue to be
an optional service.

The fee for this service currently consists

of a $4.00 surcharge per transfer in addition to the basic
transfer fee and is assessed to the off-line receiving
institution.
The purpose of the proposed same-day notification of
incoming funds transfers to receiving institutions is to promote
efficiency in the payments system by providing timely information
which permits prompt crediting of funds to the accounts of
beneficiaries.

The proposed pricing approach would assess the

-

5

-

cost of providing this service to the party that decides to
participate on Fedwire in an off-line mode.
Both the Expedited Funds Availability Act (12 U.S.C.
4001-4010) and the recently developed Article 4A to the Uniform
Commercial Code

2

encourage prompt funds availability and timely

notification to receiving institutions and the ultimate
beneficiaries.

Under Section 4A-302 of Article 4A, a Reserve

Bank would be required to execute funds transfers by means
reasonably necessary to allow payment to the beneficiary on the
payment date or as soon thereafter as is feasible.

If a Reserve

Bank executes a transfer in a manner that results in a delay in
the payment to the beneficiary, the Reserve Bank would be liable
for interest to either the originator or the beneficiary under
Section 4A-305(a) of Article 4A.

The comments to this section

indicate that a bank that delays the execution of a transfer
would generally back-value the credit to the beneficiary's bank
to compensate for the delay.

This is consistent with the current

Reserve Bank practice of crediting an off-line receiving
institution on the day of the transfer, even though the

2

Article 4A was recently approved by the National Conference
of Commissioners on Uniform State Laws and the American Law
Institute. Utah, West Virginia, Colorado, and Virginia have
adopted Article 4A, which will become effective in Utah on April
23, 1990, West Virginia on June 5, 1990, and in Virginia and
Colorado on January 1, 1991. Article 4A has been introduced in
the legislatures of at least seven other states: California,
Kansas, Massachusetts, Minnesota, Nebraska, New York, and
Oklahoma.

6

-

institution may not receive notice of the transfer until one or
more days later.

The off-line receiving institution that credits

its beneficiary on a day following the transfer day should
similarly be compensating its customer by paying interest for the
amount of the delay.

Notification to receiving banks on the

transfer day would permit them to credit their customer's account
on the payment day, and not have to pay compensation to their
customers; this would be consistent with Article 4A's objective
to ensure timely payment to the beneficiary.
Further, Regulation CC (12 CFR Part 229) requires that
depository institutions make the proceeds of funds transfers
available to their customers on the business day following the
day the depository institution receives the transfer.

Section

229.10(b) of Regulation CC defines receipt of an electronic
payment as occurring when the bank receives both payment in
finally collected funds and the payment instructions.

Same-day

notification of funds transfers would be consistent with the
purpose of the Expedited Funds Availability Act to ensure prompt
availability of funds.
The Board believes that off-line receiving institutions
should be assessed the fee for telephone notice because their
customers benefit from the more timely crediting of their
account.

Moreover, the decision not to establish an on-line

connection with the Reserve Bank is within the control of the
off-line receiving institutions, not the senders.

The decision

to participate in Fedwire off-line directly affects the

-

7

-

institution's ability to receive prompt notification.

In the

current environment, however, the sending institution must often
incur the cost of the telephone notice service to ensure that the
receiving institution receives timely notification.

Thus, if the

proposal is adopted, the type code 12 immediate advice service,
in which the sending bank instructs the Reserve Bank to notify
the receiving bank, would no longer be necessary.
The Reserve Banks would attempt to notify off-line
receiving institutions by telephone on the day the transfer is
received, and would impose the surcharge on all transfers for
which it attempted to provide notice.

In addition, a depository

institution would be responsible for notifying the Reserve Bank
if it maintains an account for another depository institution and
thus would be subject to required telephone notice of settlement
(type code 16) transfers.

If the depository institution does not

maintain an account for another institution, all incoming
transfers would be for its account, not that of a beneficiary,
and notice would not be required.

An off-line institution would

not be notified of incoming settlement transfers unless it
indicated to the Reserve Bank that it maintained an account for
another institution or it requested the optional standing order
service for settlement transfers.
The Board expects some institutions subject to the
telephone notice surcharge will reassess whether the off-line
service continues to best meet their needs and the needs of their
customers.

Some off-line institutions may find it more efficient

-

8

-

to establish electronic connections with the Reserve Bank rather
than be assessed the surcharge for each transfer received.

The

Board estimates that several hundred off-line institutions
currently can justify the cost of installing a Fedline terminal.3
In addition, the Reserve Banks are exploring lower cost
electronic alternatives for providing funds transfer notification
to low-volume institutions.
Competitive impact analysis.

The Board recently

formalized its procedures for assessing the competitive impact of
changes that have a substantial effect on payments system
participants.

4

The Board believes that this proposal will have

no adverse effect on the ability of other service providers to
compete effectively with the Federal Reserve in providing similar
services.

Specifically, the Board believes this action would

have no effect on the operations of the Clearing House Interbank
Payments System (CHIPS), because this system does not serve
low-volume institutions and all CHIPS participants are on-line to
that system.

Correspondent institutions provide access to

Fedwire to a number of small off-line institutions, and this

3
Fedline refers to software provided by the Federal Reserve
Banks and used by depository institutions with small and medium
transfer volumes to access Federal Reserve services.
4
These procedures are described in the Board's policy
statement titled "The Federal Reserve in the Payments System"
(55 FR 11648, March 29, 1990).

-

9

-

proposal does not affect the correspondents' relationship with
their respondent institutions.

By order of the Board of Governors of the Federal
Reserve System, April 30, 1990.

(signed) William W. Wiles

William W. wiles
Secretary of the Board

FEDERAL RESERVE BANK OF DALLAS
STATION K
DALLAS. TEXAS 7 5 2 2 2
ADDRESS C O R R E C T IO N REQUESTED

BULK RATE
U.S. POSTAGE

PAI D
DALLAS, TEXAS
Pe rmit No. 151