How Much Is Daylight Credit Worth?

Credit extended for a few hours during the business day, but not overnight, is called daylight credit. Once largely unnoticed, it has acquired significant importance since the Federal Reserve Banks stopped providing free and unlimited daylight overdrafts to financial institutions on demand. The Banks imposed formal restrictions in 1986 and a daylight overdraft fee in 1993, both of which were intended to reduce the subsidy of free credit. Now, as of April 13, the fee has been raised from 10 cents to 15 cents per $100 average per-minute daily overdraft in excess of 10 percent of a bank’s total risk-based capital. This Economic Commentary examines how much daylight credit might be worth to the banks that use it and looks at the implications of raising the overdraft fee.