On August 2, Better Markets filed a comment letter to the Federal Reserve highlighting the risks that would be created by proposed changes to their Payment System Risk (PSR) policy. The Fed manages a payment network that allows banks to transfer substantial amounts of cash and securities to other banks. Timing mismatches between debits and credits can create overdrafts in a bank’s account with the Fed, creating a source of credit risk to the Fed.
While the proposal’s stated goal is to reduce risk in the system by further encouraging the use of collateralized overdrafts instead of uncollateralized, the proposed changes would create new and dangerous risks to the system—primarily by allowing banks with poor supervisory ratings and/or undercapitalized banks to have access to collateralized overdrafts.
Read our full comment letter here or by clicking the button below.