Position

• ICBA supports the development and evolution of broadly inclusive, safe, highly secure, and efficient payments systems that enable risk mitigation and help community banks remain competitive and meet the payment needs of their customers.
• ICBA supports the development of ubiquitous payments settlement networks – developed by both the public and private sector – that are available to all federally insured financial institutions.
• ICBA strongly supports and encourages community bank adoption of faster payments and encourages all community banks to develop strategic approaches to offering payments products and services to their customers, including faster payments solutions.
• ICBA urges both the Federal Reserve and The Clearing House to make achieving interoperability in their real-time payments options a priority to ensure ubiquitous adoption. Both parties should aim for interoperability as soon as possible.
• ICBA urges the Federal Reserve to continue expeditious development of FedNow concurrently with the discussion and charting of a path to interoperability.
• ICBA strongly urges the Federal Reserve to proceed to bring to market a minimally viable FedNow Service as soon as possible which would allow community banks choice in selecting real-time network providers.
• ICBA urges policymakers, as well as rules and standards organizations, to assess and review the impact of faster payments on the current legal and regulatory framework.
• ICBA encourages the development of multiple approaches to liquidity management to enable banks flexibility in managing liquidity associated with the FedNow Service and private sector providers. Such tools should include account transfers, correspondent and agent transfers, automatic transfer of balances (or “sweeps”) based on pre-established thresholds and limits, in addition to the ability to borrow from the Federal Reserve’s discount window.
• ICBA maintains that the continuing adjustment of cutoff times for Fedwire and the National Settlement Service, along with the extension of the discount window to accommodate evening, weekends and holidays, is a vital step toward payments improvement and should be a priority for the Federal Reserve Board of Governors.
• ICBA supports the U.S. Faster Payments Council in its mission to facilitate a world-class payment system where Americans can safely and securely pay anyone, anywhere, at any time and with near-immediate funds availability and encourages community banks to join and actively participate in the U.S. Faster Payment Council.

Background

Development of a Real Time Gross Settlement System. The addition of a Real Time Gross Settlement (RTGS) system by the Federal Reserve for the settlement of faster payments complements present-day clearing and settlement systems by providing immediate funds settlement transaction-by-transaction on a 24x7x365 basis. Such a platform serves as a foundation for innovation, not just for payments today but as payments evolve in the future.

By developing and operating a RTGS service, the Federal Reserve: 1) provides financial institutions an infrastructure option for clearing and settling faster payments; 2) ensures access for all financial institutions; 3) provides a settlement option that is not affiliated with or owned by the nation’s largest banks; 4) serves as a backbone to ensure settlement continuity in the event of disruption in the private-sector; 5) provides a settlement option with transparent rules; and 6) encourages competition and innovation.  

Ubiquitous Adoption. Ubiquitous adoption among financial institutions should be the primary measure of success for achieving payments modernization in the U.S. The establishment of FedNow provides choice for every community bank desiring to implement a real time settlement solution. Achieving industry-wide ubiquity will require all community banks to evaluate and implement a real-time settlement solution.

Interoperability. Both the public and private sector providers should aim for interoperability at the earliest possible date, but the Federal Reserve should not delay developing and launching FedNow as the path to interoperability is discussed and charted.

Impact of Existing Legal Framework. Many faster payments networks operate with credit push payments flows that result in the payment being irrevocable. Many of the protections included in the existing legal and regulatory framework need to be revisited to accommodate new payments settlement networks such as FedNow and RTP. 

Liquidity Management Tools. The Federal Reserve should provide tools which assist community banks in managing liquidity on a 24x7x365 basis to support services for real-time interbank settlement of faster payments. These tools could include extension of National Settlement Service (NSS) cutoff times to include holidays and weekends, transfers between financial institutions and Federal Reserve accounts, and access to the Federal Reserve discount window.

These tools should be available for the FedNow service and also for any bank-centric private sector payments settlement service. Correspondent banks and bankers’ banks play a valuable role in liquidity management by serving as funding agents.

U.S. Faster Payments Council. ICBA, its staff and its members actively support the U.S. Faster Payments Council (FPC). As a founding member of the FPC, ICBA actively contributes by holding a leadership role on the board of directors and through robust participation in all workgroups.

The FPC was established by the Faster Payments Task Force, which believed that an industry-led framework for cross-solution collaboration and decision making was needed to support achievement of a faster, ubiquitous, broadly inclusive, safe, highly secure, and efficient payments system. Community bank participation in the FPC provides a voice in industry collaboration, a voting responsibility for FPC initiatives and leadership, and an opportunity to influence the development of faster payments.

Staff Contacts: Deborah Matthews Phillips and Rhonda Thomas-Whitley