June 22, 2000
NOTE TO EDITORS
Enclosed is The Timing and Funding of Fedwire Funds Transfers, an article appearing in the newest issue of the New York Feds Economic Policy Review.
Authors James McAndrews and Samira Rajan attribute the late-afternoon peak in Fedwire funds transfer activity to attempts by banks to synchronize their outgoing payments with the large payment inflows they expect to receive later in the day.
The Federal Reserves Fedwire Funds Transfer service allows participating depository institutions to transfer funds between accounts held by commercial banks at Federal Reserve Banks. McAndrews and Rajans examination of the service reveals that the highest concentration of funds transfer value occurs between 4 p.m. and 5 p.m. each day.
To explain this peak in payment activity, McAndrews and Rajan review the intraday pattern of Fedwire funds transfers. They conclude that:
Consequently, McAndrews and Rajan propose the creation of synchronization periods, in which banks could expect to receive incoming payments entered by paying banks. They argue that effective payment concentration during these periods could enable banks to further reduce financing costs and minimize the number and duration of overdrafts.
James McAndrews is an assistant vice president at the New York Fed. Samira Rajan, formerly an assistant economist at the Fed, is a masters degree candidate at Harvard University.
Contact: Douglas Tillett