IDEAS home Printed from https://ideas.repec.org/a/fip/fedgrb/y2002ifebp67-84nv.88no.2.html
   My bibliography  Save this article

The evolution of the Federal Reserve's intraday credit policies

Author

Listed:
  • Stacy Panigay Coleman

Abstract

One of the Federal Reserve's roles is to provide payment services to depository institutions and to the U.S. Treasury. Many of the nation's transfers of funds--whether they are large-dollar payments for financial market transactions or small-value business and consumer payments--settle through depository institutions' accounts held at the Federal Reserve for reserve-maintenance purposes and transaction processing. If a depository institution has insufficient balances during the day to cover its debits, it will run a negative balance or "daylight overdraft" in its Federal Reserve account until sufficient funds are received later in the day. Because depository institutions generally hold a relatively small amount of funds overnight in their Federal Reserve accounts in relation to the trillions of dollars of payments processed by the Federal Reserve each day, the Federal Reserve extends intraday credit to ensure the smooth functioning of the U.S. payment system. To reduce the risks that depository institutions present to the Federal Reserve through their use of daylight credit and to address the risks that payment systems, in general, present to the banking system and other sectors of the economy, the Federal Reserve Board in 1985 developed a payments system risk (PSR) policy. One of the primary goals of the PSR policy is to control depository institutions' use of Federal Reserve intraday credit, and as the policy has evolved, the Board has adopted specific methods for controlling daylight overdrafts. The history of the Board's PSR policy, trends in daylight overdraft and payment activity, and a possible future policy direction are discussed in this article.

Suggested Citation

  • Stacy Panigay Coleman, 2002. "The evolution of the Federal Reserve's intraday credit policies," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 67-84.
  • Handle: RePEc:fip:fedgrb:y:2002:i:feb:p:67-84:n:v.88no.2
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/bulletin/2002/0202lead.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. David B. Gordon & Ross Levine, 1988. "The capital flight "problem."," International Finance Discussion Papers 320, Board of Governors of the Federal Reserve System (U.S.).
    2. Steven B. Kamin & Robert B. Kahn & Ross Levine, 1989. "External debt and developing country growth," International Finance Discussion Papers 352, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jahangir Sultan, 2012. "Options on federal funds futures and interest rate volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(4), pages 330-359, April.
    2. Julio J. Rotemberg, 2008. "Liquidity Needs in Economies with Interconnected Financial Obligations," NBER Working Papers 14222, National Bureau of Economic Research, Inc.
    3. Huberto M. Ennis & John A. Weinberg, 2007. "Interest on reserves and daylight credit," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 111-142.
    4. ANTOINE MARTIN & JAMES McANDREWS, 2010. "Should There Be Intraday Money Markets?," Contemporary Economic Policy, Western Economic Association International, vol. 28(1), pages 110-122, January.
    5. James T.E. Chapman & Antoine Martin, 2013. "Rediscounting under Aggregate Risk with Moral Hazard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 651-674, June.
    6. repec:eee:jmacro:v:54:y:2017:i:pb:p:208-216 is not listed on IDEAS
    7. Morten L. Bech & Rodney J. Garratt, 2012. "Illiquidity in the Interbank Payment System Following Wide‚ÄźScale Disruptions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 903-929, August.
    8. Charles M. Kahn & William Roberds, 2002. "Payments settlement under limited enforcement: Private versus public systems," FRB Atlanta Working Paper 2002-33, Federal Reserve Bank of Atlanta.
    9. Demiralp, Selva & Preslopsky, Brian & Whitesell, William, 2006. "Overnight interbank loan markets," Journal of Economics and Business, Elsevier, vol. 58(1), pages 67-83.
    10. Milton H. Marquis, 2002. "Setting the interest rate," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct11.
    11. De Caux, Robert & Brede, Markus & McGroarty, Frank, 2016. "Payment prioritisation and liquidity risk in collateralised interbank payment systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 139-150.
    12. Jeffrey M. Lacker, 2003. "Payment system disruptions and the Federal Reserve following September 11, 2001," Working Paper 03-16, Federal Reserve Bank of Richmond.
    13. Mills Jr., David C. & Nesmith, Travis D., 2008. "Risk and concentration in payment and securities settlement systems," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 542-553, April.
    14. Lacker, Jeffrey M., 2004. "Payment system disruptions and the federal reserve following September 11, 2001," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 935-965, July.

    More about this item

    Keywords

    Overdrafts ; Payment systems;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgrb:y:2002:i:feb:p:67-84:n:v.88no.2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.