In This Issue…
Fed needs comments on payments, settlement proposal
Recently, the Federal Reserve asked for comments on whether the Fed should develop a new, faster settlement infrastructure to support real-time payments in the United States. The Fed really needs to hear from bankers – especially from traditional community banks – about what this new system will mean for their customers.
The new Real Time Gross Settlement System would be operated by the Fed and operate on a 24/7/365 basis, thus enabling payments to clear and settle in real time. The RTGS would give traditional community banks access to a faster payments settlement system. In turn, such a system will enable banks to compete with FinTech firms and the nation’s 24 largest banks, which have developed their own clearing house system.
This new RTGS would serve as the infrastructure for bank settlement. It would not contain any bank customer facing applications.
Another part of the proposal would create a Liquidity Management Tool that would help banks manage fund balances in their faster payments accounts to ensure excess funds don’t build up and balances are adequate to ensure that all authorized transactions are processed.
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Why should you care?
Thanks to Mark Keeling, EVP and COO of The Bankers Bank, we have access to a lot more information about why this issue is so important to all member banks. He recently sent an “alert” to the bank’s customers to alert them about how critical it is for bankers to understand what’s at stake in an effort to “energize” community bankers to comment. According to Keeling:
“On the surface, this RFC might sound mildly benign, and of no immediate significance for your bank. However, nothing could be further from the truth. This letter will underscore the potential for the Fed’s RFC to profoundly affect your bank, in the near term and for decades to come.”
The idea of real-time payments is in its technological infancy. But it won’t be there for very long. As Keeling said, “This new payment rail will cannibalize your other payment offerings, and fundamentally change how we all do business.”
Keeling went on to say the following:
The Fed is uniquely positioned in the marketplace to be a moderating force, keeping the market fair, competitive and open to any bank that wants to participate. And, while the Fed might set rules and standards for this new payments system, its presence as an operator will at least interject transparency into the process, from which community banks will benefit. We also anticipate the Fed’s presence will promote interoperability with providers that might otherwise be shut out of a monopolized market. If the Fed becomes a real-time payment operator, community banks will have alternatives in their selection of service providers, and not be forced into the arms of any one provider.
As noted in the comment request, the Fed has three expectations if it moves forward:
- It will achieve full cost recovery over the long run.
- Such a service will provide a real benefit to consumers.
- Other providers alone cannot provide the same service effectively and efficiently.
Some banks prefer the Federal Reserve to act as operator for faster payments in a manner much like the two public/private sector operators of check and ACH clearing work today. Having two operators will encourage competition and increase resiliency in case of an emergency. Some banks feel one provider is sufficient. This is just one example of the differences of opinion among bankers.
Even with the current structure in place, some banks are uncomfortable having only one faster payments solution available that’s owned and operated by their competition.
The ABA has prepared a good summary of the arguments on both sides of this important issue. That summary can be accessed on the OBA’s website by clicking here.
We’ve highlighted this issue and its importance to all traditional community banks in the Oklahoma Banker newspaper and previous editions of this Update. Perhaps you missed it, but importance of letting the Fed know what you think or how you believe it will impact your community cannot be overstated.
Comments are due Dec. 14, 2018.
Since its beginning, the Fed has been a payment rail provider for ACH, wires, image and cash services. This fact alone makes it natural and necessary for the Fed to be a provider in the new faster payments world.
Jim Reuter, CEO, FirstBank of Colorado, is an industry expert on this issue. He was a member of the Steering Committee of the Fed’s Payments Task Force, and chairs several key industry groups considering the issue, including the Government Relations Council of the American Bankers Association.
“Here’s what he explained to me,” said OBA President and CEO Roger Beverage:
Today, even when we process what appears to be real time transactions (i.e. debit card, credit card and Zelle), there is real time messaging and a commitment to debit and or make funds available via memo posting credits/debits, but the actual settlement between financial institutions still happens on a net settlement deferred basis after the fact. In addition, the amount of data that can travel with the payment is limited in current payment systems. (emphasis added)
You can review Reuter’s memorandum on our website by clicking here.
Remember: This is a payments issue. As such, non-members of the Fed are welcomed and encouraged to comment. It is important the Federal Reserve hear from as many banks as possible. Your comment does not have to be long and detailed. It can be brief and does not have to cover every possible issue. But – submitting a letter or comment – is what’s most important.
Submission Methods (include Docket No. OP-1625 as an identifier with the submission):
- Agency Website: http://www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
- Email: email@example.com. Include docket number (above) in the subject line of the message.
- FAX: (202) 452-3819 or (202) 452-3102.
- Mail: Ann Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551.
Save the dates for upcoming major OBA events!
The dates are set for the 2019 OBA Senior Management Conference as well as the 2019 OBA Convention. Put these dates and locations on your calendar for early planning!
- 2019 OBA Senior Management Conference, Sheraton Grand at Wild Horse Pass, Phoenix, Arizona, April 7-9.
- 2019 OBA Convention, Edmond Convention Center and Hilton Garden Inn, Edmond, May 20-22.
Look for more information to hit your banks early in 2019!
OBA education corner …
Thanksgiving is behind us, which means you are now allowed to hang lights and get ready to celebrate even more holidays! These past few months have just FLOWN by! With that in mind, don’t let continuing education opportunity through the OBA fly by you and your fellow bankers! Take note of the following:
- Developing and Documenting a CRA Assessment Area, Dec. 4, webinar — This program focuses on the proper method of delineating an assessment area.
- Basic Bankruptcy for Bankers, Dec. 4, webinar — This webinar will introduce you to the world of bankruptcy. It is designed for lenders and support staff with the goal of educating them on the fundamentals of both consumer and commercial bankruptcy law.
- IRS Information Reporting Rules Forms, Dec. 5, webinar — Learn about the many forms financial institutions must report, with an emphasis on when and exactly what to report.
- Loan Documentation 101: Two Part Series, Dec. 5 & Dec. 6, webinar — Learn about specific classifications of collateral and language description requirements for UCC-1s and security agreements.
- The Five Pillars of BSA, Dec. 6, webinar — This webinar is designed for BSA officers, BSA coordinators, compliance officers and security officers.
- Excel 101: Introduction to Spreadsheets, Dec. 7, webinar — If you’ve never worked with Excel spreadsheets or haven’t in several years, this webcast is designed just for you.
- Residential Construction Lending, Dec. 10, webinar — This program provides an overview of the major issues involved in consumer or residential construction lending, primarily to individuals having a home built or remodeled.
- Notary Public, Dec. 11, webinar — Help your team know their responsibilities, plus learn basic laws, liability and reviews of various notarial acts.
- New Account Interview Business Accounts: CIP, Risk and Beneficial Ownership, Dec. 11, webinar — Learn how to direct the conversation to get the compliance results you want.
- Overdrafts, Dec. 12, webinar — You need to be aware of the current regulatory expectations to keep your bank out of hot water!
- 20 Legal Account Ownerships, Dec. 14, webinar — This program is an A-Z on account ownership and documentation.
- Preparation, Risk, Critical Robbery Procedures, Dec. 17, webinar — This program will discuss advance preparation, the actual robbery event, and what the financial institution needs to support staff after the robbery.