Policy Statement on Payment System Risk
February 11, 2004
Circular No. 11577

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

The Federal Reserve Board announced that it intends to adopt two changes to its Policy Statement on Payment System Risk (PSR policy) beginning in July 2006. The modification to the PSR policy would specify that the Reserve Banks will release interest and redemption payments on securities issued by government-sponsored enterprises (GSEs) or international organizations only when the issuer's Federal Reserve account contains sufficient funds to cover these payments.

The Reserve Banks have been processing and posting these payments to depository institutions' Federal Reserve account by 9:15 a.m. Eastern Time, the same posting time as for U.S. Treasury securities' interest and redemption payments, even if the issuer has not fully funded its payments.

The rising level of intraday credit in recent years has prompted a reassessment of this practice, which is inconsistent with that of private issuing and paying agents for their customers' securities. In general, these issuing and paying agents do not allow payments to be made for a securities issuer before the issuer has fully funded its payments.

The Board requests comment by April 16, 2004 on how best to promote a smooth market adjustment while implementing this change in its PSR Policy. All inquiries should be directed to the Board.

Additionally, the Board intends to align the PSR policy's treatment of the general corporate account activity of GSEs and certain international organizations with the treatment of account activity of other account holders that do not have regular access to Federal Reserve's discount window. More details on the planned changes are available in the press release and Federal Register notice.

Press release OFFSITE
Board's notice OFFSITE PDF
11 pages / 91 kb
Federal Register notice OFFSITE PDF
5 pages / 58 kb

Paul Bettge
Associate Director
Division of Reserve Bank Operations and Payment Systems

Stacy Coleman
Division of Reserve Bank Operations and Payment Systems

Connie Horsley
Senior Financial Services Analyst
Division of Reserve Bank Operations and Payment Systems