Fed gives more time to comment on payments service expansion

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The Federal Reserve said Friday it will extend the comment period for proposals that would expand the operating hours of the National Settlement Service and FedWire payments rails.
Bloomberg News

The Federal Reserve is giving the public an additional two months to weigh in on its proposal to expand the hours of operation for two of its large volume payments systems.

Early last month, the central bank proposed keeping its Fedwire Funds Service and its National Settlement Service rails open on holidays and weekends.

Originally, the comment window on the proposal was set to close on July 8. The public now has until September 6 to submit feedback and respond to questions posed by the Fed. 

Under the proposal, the NSS — which handles multilateral private-sector clearing arrangements involving checks, securities and other private sector payments — would continue to operate 21.5 hours per day, while Fedwire Funds, which offers settlement of individual electronic funds transfers for transactions up to just under $10 billion, would still be open for 22 hours per day. 

As part of its proposal, the Fed has asked commenters for their thoughts on keeping the two systems running 24/7/365.

The potential shift comes amid a period of increased demand for all-hours settlements. The Fed itself is contributing to this trend through its FedNow service, a round-the-clock instant payment platform designed to facilitate retail transactions that was launched last year. A similar, privately operated platform, The Clearing House's Real-Time Payments Network, has been operational for roughly six years. 

The Fed is also facing pressure to expand its operating hours in response to last year's large bank failures. Two of the institutions that failed, Silicon Valley Bank and Signature Bank, both struggled to access the Fed's last resort lending facility, the discount window, in the hours before their failure.

Multiple government reports have noted that greater access to the discount window — which is separate from the two services under consideration for greater service — would not have prevented the banks from failing. But the episode has demonstrated that the Fed is overdue for modernizing its back-end payment functions.

The Fed has been weighing changes to its payments systems since 2019. In 2022, it sought industry input on expanded operating hours as part of its rollout of a new financial system messaging standard known as ISO 20022.

The standard goes into effect next year, but the proposed changes would not have to be implemented no sooner than 2027, the Fed noted, giving banks time to adjust to the new requirements.

The proposed changes would not apply to the Fedwire Securities Service, which settles transactions involving U.S. Treasury securities and securities issued by other agencies as well as government-sponsored entities.

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