Federal Reserve Bank Update Bank Depository User Group

Federal Reserve Bank Update Bank Depository User Group 2006 Annual Meeting Paul Agueci Wholesale Product Office Federal Reserve Bank of New York paul. agueci@ny. frb. org 1

Fed Update Agenda • Overview of Fedwire® Services • Fedwire Resiliency • Payment System Risk Policy Change • Fedwire Access Solutions • Current Industry Initiatives • Fedwire Services Migration Strategy • FRB Services Information "Fedwire“ is a registered service mark of the Federal Reserve Banks 2

Fedwire Services • Fedwire Funds Service – Real-Time Gross Settlement (RTGS) -- individual transfer instructions are processed immediately, as received. – Transactions are initiated by sender of funds. • Fedwire Securities Service – Delivery Versus Payment (DVP) -- securities transactions involve a simultaneous exchange of valuables. – The Fedwire securities service includes an account maintenance component and a transfer settlement component. – Transactions are initiated by sender of securities. 3

Fedwire Customers Fedwire Funds Service • Approximately 8, 900 customers. • Over 87 percent access the service on-line (electronically). • 25 customers account for 66 percent of transfer volume and 74 percent of transfer value originated. • Third-party or bank customer transactions account for over 88 percent of transfer volume and about 51 percent of transfer value. Fedwire Securities Service • Approximately 7, 600 customers. • 23 percent access the service on-line (electronically). • 25 customers account for 98 percent of transfer volume. • 2 customers account for over 70 percent of transfer volume. 4

Fedwire Volume and Value 2005 Fedwire Origination Volume and Value Funds Average Daily Transfer Value Average Transfer Value Securities 528, 000 101, 000 $2. 1 trillion $3. 9 million $1. 7 trillion $17. 1 million Total Annual Dollar Value $519 trillion $435 trillion Total Annual Volume 132 million 25 million 5

Fedwire Services Resiliency • The Fedwire Services maintain three geographically diverse, high availability data centers for its mainframe applications, support staff, applications management and customer support • The Fedwire Services provide a telecommunications network that is engineered to be diverse, up to and including the “last mile” connections to our highest volume customers • Fedwire customer support staff stand ready to process important time-critical payments manually for banks experiencing operational problems • Fedwire requires its customers to test routinely, ensuring that the Fed and its customers will be ready in a crisis Link to public statement 6

PSR Policy Change Federal Reserve Board Press Release: September 23, 2004 “… concerning interest and redemption payments on securities issued by government-sponsored enterprises (GSEs) and certain international organizations…. The revised policy requires that, beginning July 20, 2006, Reserve Banks will release these interest and redemption payments as directed by the issuer provided the issuer's Federal Reserve account contains sufficient funds to cover them. While the issuer will determine the timing of these payments during the day, each issuer will be required to fund its interest and redemption payments by 4 p. m. Eastern Time in order for the payments to be processed that day. “ 7

PSR Policy Change • In conjunction with the policy changes, affected issuers adjusted their funding and payment patterns since they no longer are permitted to incur an overdraft position in their Federal Reserve Bank accounts for purposes of funding interest and redemption payments. • The operational change was made to allow issuers to select an incremental payment pattern (i. e. . 25%) • All 5 GSEs take advantage of paying incrementally • Overall the market appears to be adjusting to the changes and loss of early morning liquidity. FRBNY Research Paper: http: //www. newyorkfed. org/newsevents/news/research/2006/rp 060503. html 8

Fed. Line Advantage. SM • Flexible, IP-based access solution that replaces DOS -based Fed. Line • Allows for secure browser-based connectivity • Provides access to the Fed. Payments Manager – Tool for preparing and submitting messages to the Fedwire Services for processing – Provides inquiry and reporting capabilities • Rollout began in November 2004 and the sunset for DOS-based Fed. Line® was September 2006 "Fed. Line Advantage" is a service mark of the Federal Reserve Banks “Fed. Line” is a registered service mark of the Federal Reserve Banks 9

Fed. Line Direct. SM Message • Fed-developed IP solution for customers with computer interfaces to the Fedwire Funds and Securities Services – Based on IBM’s MQ series product • For Funds Service: – Access currently available • For Securities Service: – Testing to begin in 4 Q 2006 – General availability scheduled for early 2007 • Open issue: How long to will Fed support legacy connectivity? – Most customers will convert in 2007 and early 2008 10 "Fed. Line Direct" is a service mark of the Federal Reserve Banks

Industry Initiatives The Federal Reserve Banks and the Clearing House Present Joint Research on Opportunities for Growth in Wire Payments: As the payments landscape continues to evolve and corporate payments migrate from paper to electronic formats, organizations are continuing to seek greater efficiencies in the funds transfer process. In order to better understand customer demand position the funds transfer systems for potential growth in the future, the Federal Reserve Banks and The Clearing House conducted a joint research study entitled, “Business to Business Wire Transfer Payments: Customer Preference and Opportunities for Financial Institutions. ” The study offers an in-depth view of the issues facing organizations that routinely make funds transfers payments and focuses on the motivations driving payment decisions as well as potential opportunities for achieving growth in these payments. (http: //www. frbservices. org/Wholesale/pdf/wire_transfer_research_fi nal. pdf) 11

Industry Initiatives • Standards initiatives – International standard setting groups • SWIFT, ISO, ANSI – Standards for remittance data • AFP, Tech 20, CHIPS • Open issues – Fed’s readiness vs. banking industry’s readiness – Timing of introduction – Sunset date for old standards 12

Fedwire Services Migration Strategy • From 2006 to 2008 migrate all computer interface customers to an IP access solution • In 2007 begin planning the multi-year migration of legacy mainframe systems to service orientated architecture on a distributed platform • Review current services and features and look for ways to improve 13

Federal Reserve Financial Services 14

FRB Services Information www. frbservices. org 15

FRB Services Information: E-Payments Routing Directory Fedwire Status Fedwire Call Notices For Securities: Clearing Memo News: Fed. Flash Fed. Focus News from Fed. ACH 16

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