The Federal Reserve Policy on Payment System Risk (PSR policy) (PDF) addresses the risks that payment, clearing, settlement, and recording activities present to the financial system and to the Federal Reserve Banks (Reserve Banks). In adopting the PSR policy, the Board's objectives are to foster the safety and efficiency of payment, clearing, settlement, and recording systems (collectively known as financial market infrastructures (FMIs)), and to promote financial stability more broadly. The Board expects that financial system participants will reduce and control settlement and other systemic risks arising in FMIs, consistent with the smooth operation of the financial system.
The PSR policy is composed of two parts: Part I sets forth the Board's views and related standards regarding the management of risks in FMIs, including those operated by the Reserve Banks. Part I of the PSR policy incorporates the risk-management standards in the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI). The Board's transparency expectations in the PSR policy are also based, in part, on the CPSS-IOSCO disclosure framework that complements the PFMI. FMIs within the scope of part I include public and private-sector payment systems that settle a daily aggregate gross value of U.S. dollar-denominated transactions above a certain threshold as well as central securities depositories, securities settlement systems, central counterparties, and trade repositories irrespective of the value or nature of the transactions processed by the system.
Part II of the PSR policy governs the provision of intraday credit (or daylight overdrafts) in accounts at the Reserve Banks. The PSR policy recognizes that the Federal Reserve has an important role in providing intraday balances and credit to foster the smooth functioning of the overall payment system and also seeks to control the risks assumed by the Reserve Banks in providing this intraday credit. The Reserve Banks provide intraday balances by way of supplying temporary, intraday credit to healthy depository institutions. The Reserve Banks control their exposures through several methods including by incentivizing institutions to collateralize daylight overdrafts voluntarily through a zero fee for collateralized daylight overdrafts, setting limits on daylight overdrafts in institutions' Federal Reserve accounts, and requiring collateral in certain situations. The Federal Reserve monitors daylight overdrafts for each institution ex post on a minute-by-minute basis to ensure compliance with the policy.