The Board of Governors of the Federal Reserve System (Board) on July 19 reaffirmed its long-standing policy of applying relevant international risk-management standards to the Federal Reserve Banks' Fedwire funds and Fedwire securities services. These services play a critical role in the financial system and in facilitating the safe and efficient settlement of private-sector financial market utilities. The Board's announcement follows the Financial Stability Oversight Council's (FSOC) final designation of eight financial market utilities (FMUs) as systemically important for purposes of implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act. The four factors that FSOC uses to determine its designations are (1) the aggregate monetary value of transactions processed by the FMU; (2) the aggregate exposure of the FMU to its counterparties; (3) the relationship, interdependencies, or other interactions of the FMU with other FMUs or payment, clearing, or settlement activities; and (4) the effect that the failure of or a disruption to the FMU would have on critical markets, financial institutions, or the broader financial system. (See second link below.)
Under the Federal Reserve Act, the Board has supervisory authority over the Reserve Banks, including the Reserve Banks' provision of payment and settlement services. The Board stated that it "is committed to the strong and effective supervision of the Reserve Banks and recognizes that critical Reserve Bank payment and settlement services should be subject to rigorous and comprehensive supervision that is comparable to or exceeds the supervision of similar private-sector payment and settlement arrangements."
The Board explained that its examination framework for Fedwire "is consistent with the framework that will be used by the Federal Reserve for FMUs designated as systemically important by the FSOC and supervised by the Board. In addition, the Board is ensuring that the Reserve Banks are held to procedural requirements with respect to Board review of proposed material changes to Fedwire rules, procedures, and operations that are the same as, or higher than, the requirements for designated financial market utilities."
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