FEDERAL GOVERNMENT RELATIONS
Fed Proposes Expanding Operating Times of Fedwire, NSS to Weekends, Holidays
The Federal Reserve is proposing to expand the operations of the Fedwire Funds Service and the National Settlement Service to include weekends and holidays so both would be available every day of the year. Currently, both payments services operate Monday through Friday, excluding holidays. In its announcement, the Fed said that expanding the times of operation of both would “support the safety and efficiency of the U.S. payment system and help to position the nation's payment and settlement infrastructure for the future,” but acknowledged there could be drawbacks.
“For example, potential benefits of expanding operating days include improving the credit risk and operational efficiency of systemically important financial market utilities and private-sector retail payment arrangements, spurring innovation in new or enhanced private-sector payment solutions, and supporting more efficient cross-border payments flows,” the Fed said. “On the other hand, it would also require operational and technical changes that would impose costs.”
The Fed is also proposing to expand the operating hours of NSS to close 30 minutes earlier than Fedwire, which is open from 9 a.m. to 7 p.m. ET. The Fed is not considering expanding operating hours for Fedwire. The changes would be implemented at least two years after the migration of Fedwire to the ISO 20022 standard, scheduled for March 2025. The Fed is seeking public comment on the proposal, with a deadline of 60 days after publication in the Federal Register.
Agencies Release Third-Party Risk Management Guide for Community Banks
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency last Friday released a new guide to help community banks develop and manage third-party risk management practices. Among other provisions, the guide states that engaging a third party does not diminish or remove a bank’s responsibility to operate in a safe and sound manner, or to comply with legal and regulatory requirements, just as if the bank were to perform the service or activity itself.
“A community bank may engage an external party to conduct aspects of its third-party risk management,” the guide states. “However, the bank cannot abrogate its responsibility to employ effective risk-management practices, including when using a third party to conduct third-party risk management on behalf of the bank.”
The guide provides potential considerations, resources and examples through each stage of the third-party risk-management life cycle. It is not a checklist and does not prescribe specific risk-management practices or establish any safe harbors for compliance with laws or regulations, the agencies said. It also is not a substitute for the existing interagency guidance on third-party relationship risk management.
Fed Report Suggests Climate Risks Difficult to Measure
The Federal Reserve Board released a summary Thursday of an exploratory pilot climate scenario analysis exercise that it conducted with six of the nation's largest banks, with the megabanks reporting challenges in conducting the climate analysis.
The Fed conducted a pilot climate scenario analysis exercise in 2023 on large banks’ ability to identify and manage climate-related financial risks. It said the pilot was exploratory and does not have consequences for bank capital or supervisory implications.
The Fed said:
- The banks took a wide range of approaches to consider the resiliency of their business models to various climate scenarios.
- Participants reported significant data and modeling challenges in estimating climate-related financial risks.
- Participants suggested that climate-related risks are highly uncertain and challenging to measure.
- Additional investment and analysis could improve participants’ risk-management capabilities.
- Highly uncertain risks are challenging to measure and thus hard to incorporate into risk-management frameworks.
Fed Governor Cook: Fed Stepping up CRE Supervision
The Federal Reserve is stepping up supervisory work with community and regional banks that have significant commercial real estate concentrations, Fed Governor Lisa Cook said in a speech Wednesday. Speaking in Washington, Cook said CRE loans make up roughly 5% of total assets at large banks and around 30% of assets at smaller banks. Nevertheless, Cook cited the overall resilience of the banking sector, the solid state of bank profitability, and the stability of deposit flows. In December the Federal Deposit Insurance Corp. issued an advisory to reemphasize the importance of strong capital, appropriate credit loss allowance levels and robust credit risk-management practices for institutions with commercial real estate concentrations.