The New York Fed offers banking and financial services to about 250 central banks, governments and international official institutions on behalf of the Federal Reserve System. These consist of payment services, custodial services for securities and gold, and investment services. The Bank offers other services on an occasional basis, such as technical assistance and training for central bankers. The wide-ranging services the New York Fed offers to official international account holders have led the Bank to play a significant role in the worldwide financial system.
Foreign official account holders pay out and receive funds via the Federal Reserve's Funds Transfer System, commonly referred to as Fedwire®. For incoming payments, foreign and international account holders receive funds from correspondents through the Fedwire® Funds Service. For outgoing payments, customers send us payment instructions by authenticated SWIFT, and we execute payments through Fedwire®.
Account holders can also send U.S. currency to the Bank for deposit to their accounts. The customer’s account is credited with the amount of currency received. When central banks need U.S. currency and do not have a private arrangement in place for obtaining the currency, the New York Fed can assist its account holders to arrange the shipment of banknotes. The customer's account is charged for the amount of currency provided.
The New York Fed will, at a customer’s request, execute transactions for the purchase and sale of certain non-dollar currencies in the U.S. foreign-exchange market. In such transactions, the Bank acts as principal for its customers. These purchases and sales are not considered to be U.S. foreign exchange intervention, nor are they intended to reflect any policy initiative of the U.S. monetary authorities.
Custodial and Safekeeping Services
Most of the assets held in custody at the Bank in international official accounts are in the form of marketable U.S. government and agency securities. The New York Fed provides custodial services, including principal and interest payments, for Fedwire®-eligible securities, as well as for some non-Fedwire® securities through an arrangement with the Depository Trust and Clearing Corporation (DTCC) for eligible customers. The Bank also provides clearing and settlement services for customers’ securities transactions.
In addition to holding U.S. dollar-denominated assets, the New York Fed provides vault facilities to central banks and international official institutions for the deposit and safekeeping of gold. The Bank keeps the identity of all account holders to which vault services are provided confidential.
The New York Fed provides limited investment services to its foreign official and international account holders. Principal among these is the foreign repurchase agreement pool (foreign repo pool).1 This investment service operates as follows: at the end of each business day, cash balances across these accounts are swept and invested in an overnight repurchase agreement using securities held in the System Open Market Account (SOMA). At maturity, on the following business day, the securities are repurchased at a repurchase price reflecting a rate of return tied to comparable market-based Treasury repo rates.
The foreign repo pool is a short-term liquid, U.S. dollar investment option for account holders and supports daily cash management needs to clear and settle securities. This investment service has been a standard provision of the New York Fed to foreign public sector account holders for many years and is separate from monetary policy operations, including the overnight and term reverse repo operations.
Like other factors affecting the level of reserves in the U.S. banking system, an increase in investment in the foreign repo pool results in a corresponding decrease in reserves. Given that a change in the size of the foreign repo pool alters the availability of reserves in the U.S. financial system, the New York Fed can manage the overall size of the foreign repo pool or individual account participation in the foreign repo pool in order to maintain orderly market or reserve management conditions. In addition, the New York Fed may choose to limit the overall size of, or individual account participation in, the foreign repo pool based on other factors, such as the amount of available securities held at any time in the SOMA.
The Bank can also purchase and sell securities on a customer’s behalf according to the customer’s pre-determined standing instructions, or as requested on an individual basis. Customer instructions must specify the type of securities the account holder wants to buy. The Federal Reserve does not give investment advice.
On a less frequent basis, the New York Fed provides other services to central banks and international official institutions. One of the services is an annual central banking seminar, which consists of a series of group discussions and lectures at the Bank on topics such as bank supervision, monetary policy implementation and portfolio management.
The New York Fed also provides onsite technical assistance to a requesting central bank in a variety of areas relating to central bank operations. This assistance ranges from how to implement new technology to how to run bank examinations.
1The foreign repo pool is reported on the H.4.1. statistical release titled "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks" and described as “Reverse repurchase agreements” with “foreign official and international accounts.”
Archived April 2018