Magazine article American Banker

Early Fed Wire Opening Proposed: Two Additional Morning Hours Might Start in '93

Magazine article American Banker

Early Fed Wire Opening Proposed: Two Additional Morning Hours Might Start in '93

Article excerpt

WASHINGTON -- Aiming to reduce risk in the foreign exchange and futures markets, the Federal Reserve plans to seek comment on a proposal to open its Fed Wire funds transfer system two hours earlier.

The move to an opening of 6:30 a.m. eastern time, intead of the current 8:30 a.m., is designed to encourage banks to settle futures or international payments through Fed Wire.

An early opening also could reduce the risk of losses that occur when a counterparty to a transaction fails before making payment.

More Overlap with Europe

The new opening time would increase the overlap between the business hours of the U.S. and European markets. And the 14-hour gap between the U.S. and Japanese trading days would be shortened.

The Fed acknowledges that despite the proposed earlier opening, banks still may not choose to use Fed Wire to settle international payments.

Today most banks settle the dollar side of most foreign-exchange payments over the Clearing House Interbank Payments System, or Chips.

Increasing Settlement Times

Chips, owned by the New York Clearing House Association, is a net settlement system, and transactions do not settle until Chips closes at 4:30 p.m. Officials at the Fed and Chips have discussed the possibility that Chips settle several times a day.

"A potential use of the early morning Fed Wire might be to settle the dollar side of a foreign exchange transaction earlier," said Carol W. …

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