Daylight overdrafts that are not eliminated by the end of the Fedwire day become overnight overdrafts. Overnight overdrafts pose a greater risk to the Reserve Banks than do discount window loans because there is no assurance that overnight overdrafts would be collateralized. To minimize Reserve Bank exposure to overnight overdrafts, the Board established a policy to discourage institutions from incurring overnight overdrafts by charging a penalty fee.

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Last Update: August 02, 2013