Payment System Risk Glossary

Above Average Cap
The cap category that permits an institution to incur daylight overdrafts on a single day, up to 1.875 times its capital measure and an average of its peak daily overdrafts, during any two-week reserve maintenance period, up to 1.125 times its capital measures.
Account Balance Services (ABS)
A centralized application that monitors ex-post depository institutions' compliance with the Board of Governors' Payment System Risk (PSR) policy. 
Account Balancing Monitoring System (ABMS)
The Federal Reserve’s computer system that allows depository institutions with online access to Fedwire to view account balance information. ABMS also allows Federal Reserve Banks to monitor institutions’ account positions and payment activity on a real time basis. 
ACH (Automated Clearing House)
An electronic batch processing service used to disburse or collect funds.
Administrative Reserve Bank
The Federal Reserve Bank with primary responsibility for daylight overdraft monitoring of an institution with Federal Reserve account activity in more than one Federal Reserve district.
Affiliate
Any company that controls, is controlled by, or is under common control with, a bank or nonbank bank (according to Federal Reserve Regulation Y).
Agreement Corporation
A corporate subsidiary of a federal- or state-chartered bank having an agreement or undertaking with the Board of Governors, under Section 25 of the Federal Reserve Act, to engage in international banking and investments.
Banker’s Bank
An institution organized and chartered solely to do business with other banks, and primarily owned by the banks that it services. Banker’s banks do not take deposits or make loans to the public, and are not eligible for discount window access unless they voluntarily maintain reserves.
Basel Capital Accord
A 1988 agreement by the Committee on Banking Regulations and Supervisory Practices of the Group of Ten Countries that establishes a framework for bank capital measurement and capital standards.
Board-of-Directors’ Resolution
A statement of intention to follow a course of action that is approved by a majority vote of a quorum of the board of directors of a corporation. In the context of the PSR policy, a board-of-directors’ resolution would be adopted to convey approval to a Reserve Bank of a net debit cap category or an inter-affiliate transfer arrangement.
Board of Governors
The Board of Governors of the Federal Reserve System.
Book-Entry Overdraft
A daylight overdraft in an institution’s Federal Reserve account caused by debits to the account resulting from the receipt of securities over Fedwire.
Book-Entry Securities Transfer
Generally, electronic transfer of a U.S. Treasury or Government Agency security over the Fedwire system.
Cap
See Net Debit Cap.
Capital
See Risk-Based Capital.
Cap Category
An institution’s category or class for purposes of determining its daylight overdraft net debit cap. There are six cap categories: Zero, Exempt-from-filing, De minimis, Average, Above average, and High.
Cap Multiple
The factors associated with each cap category for purposes of calculating the net debit cap.
Competitive Equality Banking Act (CEBA)
A federal law enacted August 10, 1987, that, among other things, prohibits nonbank banks and certain industrial banks from incurring daylight overdrafts in their Federal Reserve accounts on behalf of affiliates.
Daylight Overdraft
A negative position in an institution’s Federal Reserve account at any time during the business day.
Deductible
A percent of an institution’s capital that is used to determine the amount deducted from the gross overdraft charge for a day.
De Minimis Cap
The cap category that permits an institution to incur daylight overdrafts up to a net debit cap equal to 40 percent of its capital.
Edge Act Corporation
A corporate subsidiary of a domestic or foreign bank, established under section 25(a) of the Federal Reserve Act to engage in international banking and investments.
Effective Daily Rate
Under the PSR program, the annual rate charged for daylight overdrafts divided by 360 days, adjusted for the portion of the day during which Fedwire funds transfer system is officially operating.
End-of-Minute Balance
The balance in an institution’s Federal Reserve account at the end of each minute (hh:mrn:59) as measured by DORPS for purposes of daylight overdraft reporting and pricing.
Exempt-From-Filing
The daylight overdraft cap category that permits an institution to incur daylight overdrafts up to a cap equal to the lesser of $10 million or 20 percent of its capital.
Fedwire
The Federal Reserve funds and book-entry government securities transfer system.
Fractional Posting Times
The clock hours from 11:00 a.m. through 6:00 p.m. Eastern time, when a portion of check credits are posted for separately sorted cash letters drawn on a particular time zone or for mixed and other Fed cash letters deposited in a particular time zone. The percentage of check credits, by cash letter type, for each hour is determined by Reserve Banks based on surveys of check presentment times, and applies only to those institutions choosing the fractional posting time option for their check credits.
Float-Weighted Posting Time
The float-neutral time at which check credits are posted for separately sorted cash letters containing checks drawn on a particular time zone or for mixed and other Fed cash letters deposited in a particular time zone. Float-weighted posting times are determined by Reserve Banks based on surveys of check presentment times, and apply only to those institutions choosing the float-weighted posting time option for their check credits.
Gross Overdraft Charge
The daylight overdraft charge calculated before being reduced by the deductible valued at the effective daily rate charged for overdrafts.
Industrial Bank
An institution as defined in section 2(c)(2)(H) of the Bank Holding Company Act. In general, an industrial bank is a state-chartered finance company that makes loans and raises funds by selling investment certificates or investment shares to the public.
Inter-Affiliate Transfers
Transfers of funds among affiliates that may be designed to reallocate daylight overdraft caps among the affiliated institutions; requires a special agreement under the PSR policy.
Liquidity
The ability to make payments as they become due in readily available funds.
Net Debit Cap
The maximum dollar amount of daylight overdrafts an institution is permitted to incur in its Federal Reserve account at any point in the day, or on average over a two-week period. The net debit cap is generally equal to an institution’s capital times the cap multiple for its cap category.
Net Debit Position
A negative intraday or interday balance in an account or a negative position with an institution’s counterparties in a private clearing and settlement arrangement.
Nonbank Bank
In general, an institution that accepts deposits or makes commercial loans, but does not engage in both activities. Any institution that became a bank as a result of the enactment of CEBA and was not controlled by a bank holding company on the day before the CEBA enactment.
Overnight Overdraft
A negative position in a Federal Reserve account at the Reserve Bank’s close of business. Overnight overdrafts are subject to a penalty fee.
Peak Daily Overdraft
The maximum end-of-minute negative account balance incurred on a particular day.
Posting Rules
A schedule used for determining the timing of debits and credits to an institution’s Federal Reserve account for various transactions processed by the Reserve Banks.
PSR Policy
The Federal Reserve’s Payments System Risk policy.
Real-Time Monitoring
The ABMS function that provides the ability to monitor an institution’s Federal Reserve account balance as transactions occur throughout the day, and to reject or intercept outgoing funds transfers when they would cause an overdraft in excess of a given threshold.
Reserve Maintenance Period
A two-week period beginning on a Thursday and ending on a Wednesday over which most depository institutions must maintain required reserves and over which daylight overdrafts are monitored and charges may be assessed.
Risk-Based Capital
The “qualifying” or similar capital measure used to satisfy risk-based capital standards, as set forth in the capital adequacy guidelines of the federal financial regulatory agencies. For most institutions, risk-based capital equals Tier I plus Tier II capital.
Self-Assessment
A procedure by which a depository institution assesses its own creditworthiness, intraday funds management, operational controls, contingency procedures, and credit policies in order to determine its appropriate cap category for daylight overdraft purposes.
Self-Assessment Cap
One of three cap categories for which institutions are required to complete a self-assessment. Self-assessment cap categories may be Average, Above average, or High.
Systemic Risk
In the context of payment systems, the risk that liquidity or payment problems at one financial institution will be transmitted to other institutions.
Third-Party Access Arrangements
An arrangement whereby a depository institution allows a third party service provider to initiate payment activity, such as Fedwire transfers, from the depository institution’s Federal Reserve account.
Two-Week Average Draft
The sum of the peak daily overdrafts over a two-week reserve maintenance period divided by the number of business days in the period.
U.S. Capital Equivalency
Capital measure applied to U.S. branches and agencies of foreign banks for purposes of calculating net debit caps and the deductible used to calculate daylight overdraft charges.
Zero Cap
The net debit cap category associated with a cap multiple of zero and resulting in a net debit cap of zero.