Federal Reserve Bank Update Bank Depository User Group 2006 Annual Meeting

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Federal Reserve Bank UpdateBank Depository
User Group 2006 Annual Meeting
Paul Agueci Wholesale Product Office Federal
Reserve Bank of New York paul.agueci_at_ny.frb.org
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Fed Update Agenda

• Overview of Fedwire Services
• Fedwire Resiliency
• Payment System Risk Policy Change
• Fedwire Access Solutions
• Current Industry Initiatives
• Fedwire Services Migration Strategy
• FRB Services Information

"Fedwire is a registered service mark of the
Federal Reserve Banks
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Fedwire Services

• Fedwire Funds Service
• Real-Time Gross Settlement (RTGS) -- individual
  transfer instructions are processed immediately,
  as received.
• Transactions are initiated by sender of funds.
• Fedwire Securities Service
• Delivery Versus Payment (DVP) -- securities
  transactions involve a simultaneous exchange of
  valuables.
• The Fedwire securities service includes an
  account maintenance component and a transfer
  settlement component.
• Transactions are initiated by sender of
  securities.

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Fedwire Customers

• Fedwire Funds Service
• Approximately 8,900 customers.
• Over 87 percent access the service on-line
  (electronically).
• 25 customers account for 66 percent of transfer
  volume and 74 percent of transfer value
  originated.
• Third-party or bank customer transactions account
  for over 88 percent of transfer volume and
  about 51 percent of transfer value.
• Fedwire Securities Service
• Approximately 7,600 customers.
• 23 percent access the service on-line
  (electronically).
• 25 customers account for 98 percent of transfer
  volume.
• 2 customers account for over 70 percent of
  transfer volume.

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Fedwire Volume and Value
2005 Fedwire Origination Volume and Value
Funds Securities Average Daily
Transfers 528,000 101,000 Average Daily
Transfer Value 2.1 trillion 1.7
trillion Average Transfer Value 3.9
million 17.1 million Total Annual Dollar
Value 519 trillion 435 trillion Total Annual
Volume 132 million 25 million
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Fedwire Services Resiliency

• The Fedwire Services maintain three
  geographically diverse, high availability data
  centers for its mainframe applications, support
  staff, applications management and customer
  support
• The Fedwire Services provide a telecommunications
  network that is engineered to be diverse, up to
  and including the last mile connections to our
  highest volume customers
• Fedwire customer support staff stand ready to
  process important time-critical payments manually
  for banks experiencing operational problems
• Fedwire requires its customers to test routinely,
  ensuring that the Fed and its customers will be
  ready in a crisis
• Link to public statement
• http//www.frbservices.org/Wholesale/pdf/FedwireRe
  silience.pdf

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PSR Policy Change

Federal Reserve Board Press Release September
23, 2004 concerning interest and redemption
payments on securities issued by
government-sponsored enterprises (GSEs) and
certain international organizations. The revised
policy requires that, beginning July 20, 2006,
Reserve Banks will release these interest and
redemption payments as directed by the issuer
provided the issuer's Federal Reserve account
contains sufficient funds to cover them. While
the issuer will determine the timing of these
payments during the day, each issuer will be
required to fund its interest and redemption
payments by 4 p.m. Eastern Time in order for the
payments to be processed that day.

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PSR Policy Change

• In conjunction with the policy changes, affected
  issuers adjusted their funding and payment
  patterns since they no longer are permitted to
  incur an overdraft position in their Federal
  Reserve Bank accounts for purposes of funding
  interest and redemption payments.
• The operational change was made to allow issuers
  to select an incremental payment pattern (i.e..
  25)
• All 5 GSEs take advantage of paying incrementally
• Overall the market appears to be adjusting to the
  changes and loss of early morning liquidity.
• FRBNY Research Paper
• http//www.newyorkfed.org/newsevents/news/research
  /2006/rp060503.html

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FedLine AdvantageSM

• Flexible, IP-based access solution that replaces
  DOS-based FedLine
• Allows for secure browser-based connectivity
• Provides access to the FedPayments Manager
• Tool for preparing and submitting messages to the
  Fedwire Services for processing
• Provides inquiry and reporting capabilities
• Rollout began in November 2004 and the sunset for
  DOS-based FedLine was September 2006
• "FedLine Advantage" is a service mark of the
  Federal Reserve Banks
• FedLine is a registered service mark of the
  Federal Reserve Banks

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FedLine DirectSM Message

• Fed-developed IP solution for customers with
  computer interfaces to the Fedwire Funds and
  Securities Services
• Based on IBMs MQ series product
• For Funds Service
• Access currently available
• For Securities Service
• Testing to begin in 4Q2006
• General availability scheduled for early 2007
• Open issue How long to will Fed support legacy
  connectivity?
• Most customers will convert in 2007 and early
  2008
• "FedLine Direct" is a service mark of the Federal
  Reserve Banks

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Industry Initiatives
The Federal Reserve Banks and the Clearing House
Present Joint Research on Opportunities for
Growth in Wire Payments As the payments
landscape continues to evolve and corporate
payments migrate from paper to electronic
formats, organizations are continuing to seek
greater efficiencies in the funds transfer
process. In order to better understand customer
demand and position the funds transfer systems
for potential growth in the future, the Federal
Reserve Banks and The Clearing House conducted a
joint research study entitled, Business to
Business Wire Transfer Payments Customer
Preference and Opportunities for Financial
Institutions. The study offers an in-depth view
of the issues facing organizations that routinely
make funds transfers payments and focuses on the
motivations driving payment decisions as well as
potential opportunities for achieving growth in
these payments. (http//www.frbservices.org/Whol
esale/pdf/wire_transfer_research_final.pdf)
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Industry Initiatives

• Standards initiatives
• International standard setting groups
• SWIFT, ISO, ANSI
• Standards for remittance data
• AFP, Tech 20, CHIPS
• Open issues
• Feds readiness vs. banking industrys readiness
• Timing of introduction
• Sunset date for old standards

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Fedwire Services Migration Strategy

• From 2006 to 2008 migrate all computer interface
  customers to an IP access solution
• In 2007 begin planning the multi-year migration
  of legacy mainframe systems to service orientated
  architecture on a distributed platform
• Review current services and features and look for
  ways to improve

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Federal Reserve Financial Services
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FRB Services Information
www.frbservices.org
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FRB Services Information

• Information
• E-Payments Routing Directory
• Fedwire Status
• Fedwire Call Notices
• For Securities Clearing Memo
• News
• FedFlash
• FedFocus
• News from FedACH

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Questions ?