The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach & Education function engages, empowers and educates the public in the Second District. Our outreach mission furthers the Bank’s commitment to the region by listening to the communities we serve and developing programs, analysis and sponsored conferences and clinics to help meet their needs. Our education mission aims to advance public knowledge about the Federal Reserve System and its role in the economy.
Credit extensions to banks using the Fedwire Funds Service—the Federal Reserve’s real-time gross settlement (RTGS) payments system—can reach intraday peaks as high as $86 billion. This article evaluates the effectiveness of alternative methods of settling Fedwire payments in reducing intraday credit extensions. The authors simulate three deferred settlement mechanisms that complement RTGS systems: one-hour netting, six-hour netting, and a mechanism called a receipt-reactive gross settlement (RRGS) system. Their results suggest that in conjunction with RTGS systems, the RRGS mechanism could significantly reduce daylight credit extensions while modestly delaying the average time of payment settlement. Moreover, certain features of RRGS systems may encourage banks to submit payments earlier in the day. Further research on RRGS systems may shed light on whether they could prove to be a true liquidity-saving complement to real-time gross settlement systems.