ABA Opposes Some Proposed Changes to Fed’s Payment System Risk Policy

The American Bankers Association today expressed opposition to several proposed changes to the Federal Reserve’s payment system risk policy. In a letter to the Fed, ABA raised concerns over parts of the proposal that would provide benefits to participants in FedNow—the real-time payments network the Fed is developing and expects to launch in 2023—over financial institutions that choose not to adopt it.

Specifically, the association opposed higher daylight overdraft expenses that would be based on a 24-hour day, regardless of whether institutions would have around-the-clock access via FedNow. ABA emphasized that “the current fee calculations should remain unchanged for those institutions without 24-hour access. This policy should be a temporary one and revisited when all financial institutions become operable on a 24-hour basis.” ABA also opposed a proposal to link the Liquidity Management Tool the Fed is developing to FedNow Services. Rather, ABA called for the LMT to be “operated independently of FedNow services and made available to all financial institutions as soon as possible.”

“ABA supports the ability of banks to use the LMT to resolve overnight overdrafts quickly to avoid penalties. However, by linking this ability to being a FedNow Services participant, the board is creating a system where those financial institutions that are not FedNow Services participants would be penalized unjustly,” the association wrote.

ABA expressed support for certain parts of the proposal, including those that would expand the scope of financial institutions eligible to apply for intraday credit and streamline the process, with the condition that each application be subject to extensive review—especially those with novel charters that do not have the same level of oversight as traditional financial institutions.