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CBA Comment Letter re Potential Federal Reserve Actions to Support Interbank Settlement of Faster Payments
Ann E. Misback
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Re: Docket No. OP-1625; Potential Federal Reserve Actions to Support Interbank Settlement of Faster Payments
Dear Ms. Misback,
The Consumer Bankers Association (CBA) appreciates the opportunity to provide input in response to the request for comment issued by the Board of Governors of the Federal Reserve System (FRB) regarding potential Federal Reserve services that may help achieve the goals of ubiquitous, nationwide access to safe and efficient faster payments. CBA strongly supports and shares the FRB’s goal of a safe, efficient, equitable, and ubiquitous faster payments system for the U.S. CBA and its member institutions believe that informed, transparent processes and services are the best way to produce informed policy that is good from both depository institutions and consumers. Furthermore, we believe a well-functioning payment system is critical to maintaining a thriving and stable consumer finance marketplace. As such, we believe there are several areas in which the FRB could improve the process of facilitating a faster payments network moving forward, which are addressed further below.
The FRB seeks comment on two potential Federal Reserve services, a 24x7 FRB-operated real-time gross settlement service (RTGS) and a liquidity management tool (Liquidity Service). As discussed below, CBA believes:
- Any gross settlement service developed by the FRB should have full interoperability and be functionally aligned with private industry efforts by 2020; and
- There is an important role for the FRB to play in the support of faster payments in the U.S. by providing a Liquidity Service as proposed, preferably as an expansion of Fedwire Funds Service operating hours.
CBA believes the FRB has successfully played an important role in the facilitation of faster payments in the U.S. and can continue to facilitate faster payments by continuing its role of convening stakeholders through its Faster Payments Task Force (FPTF). CBA believes the FRB can, and should, continue to facilitate a ubiquitous payments system by continuing to convene stakeholders through its FPTF. We are committed to working with the FRB and share the goal of a ubiquitous faster payment system for the U.S.
FRB RTGS Service Proposal
As the FRB is well aware, private industry efforts to effectuate an efficient real-time payment system have been underway for some time. The Real-Time Payments System (RTP) developed by The Clearing House (TCH) was launched in late 2017 and was built to meet the demands of the modern digital economy by delivering 24/7/365 clearing and real-time interbank settlement. This system fulfills the vision of the FRB’s FPTF, which was chartered to determine the best means to bring real-time payments to the U.S. and is on track to meet the FPTF’s goal of near-universal reach by the end of 2020.
Accordingly, CBA strongly believes that any FRB-developed system should be fully interoperable with TCH’s RTP by year-end 2020 and should require payment message interoperability, simultaneous real-time final clearing and settlement, and interoperability of a two-way value-add message set (e.g. payment acknowledgement, request for payment, remittance advice). If the FRB is unable to build an interoperable system, the result would be problematic as it is unclear how participants in one system could exchange and settle real-time payments with participants of another system. A cautionary tale from Europe as shown that two real-time clearing and settlement systems, the European Central Bank’s TARGET Instant Payment Settlement and the private sector’s RT1, have not been interoperable and have created friction in that payments market. Similarly, with competing systems in the U.S., banks have to decide where to prioritize their resources and/or which system to connect to. If systems have different users, they will be inefficient, as a ubiquitous payments system is needed to successfully clear and settle payments in a real-time manner.
Accordingly, the creation of a RTGS service should be approached carefully, if the FRB decides to proceed. Any action taking by the FRB should be with the goal of providing a ubiquitous payments system. Without ubiquity in multiple systems, the real-time payments market will be fragmented and no system will be able to achieve full network status, forcing end-users to develop services that can be supported by multiple systems or to choose between systems. If the FRB pursues an RTGS service but does not meet these interoperability goals by 2020, it may hinder rather than help progress towards an effective, ubiquitous U.S. real-time payments system.
Liquidity Management Tool
With regards to the liquidity management tool, CBA is supportive of the development of such a tool and believes it will support and enhanced settlements in real-time payments. The FRB has specifically asked whether the liquidity service, which would provide banks a method to transfer liquidity between Federal Reserve accounts outside of standard business hours, would be beneficial to the faster payments efforts in the U.S. CBA believes the expansion of the Fedwire Funds Service hours of operation would go far in accomplishing this goal, as it would allow banks to more efficiently lend each other liquidity in the any given network. The FRB should pursue development of the liquidity management too promptly and independent of its decision on the RTGS services.
CBA also holds the FRB could expand the opening hours of the National Settlement Service (NSS) to support daily settlement activity with longer opening hours, ideally on a near 24x7 schedule, even on weekends and holidays. Current the FRB has only extended NSS hours by 30 minutes, from 5:00 p.m. to 5:30 p.m. ET. We believe and extension of hours would be useful to faster payment services provided via ACH or other future private sector arrangements involving settlement groups.
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CBA appreciate the opportunity to provide comments in response to the FRB’s request. If you have any questions regarding our comments, please do not hesitate to contact the undersigned at (202) 552-6368, or at firstname.lastname@example.org.
SVP, Associate General Counsel
Consumer Bankers Association