CUNA Comment Letter

Re: Docket No. R-1138 Proposed Expansion of Hours for the On-line Fedwire Funds Service

Sent via e-mail: regs.comments@federalreserve.gov

March 4, 2003

Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

Dear Ms. Johnson:

The Credit Union National Association ("CUNA") appreciates the opportunity to comment on the proposal to expand the operating hours for the Fedwire Funds Service ("Fedwire"). CUNA, a national trade association, represents more than 90 percent of the nation's 10,000 state and federal chartered credit unions. This letter reflects the views of CUNA’s Payment Systems Subcommittee, whose chair is Terry West of VyStar Credit Union, Jacksonville, Florida.

Under this proposal, Fedwire would open three and one-half hours earlier at 9:00 p.m., close at 6:30 p.m. as it does currently, and thus, be open for twenty-one and one-half hours each day. The new opening time would have a business date of the following calendar day. For example, if today were Thursday, November 14, 2002, Fedwire would open at 9:00 p.m., with the business cycle date of Friday, November 15, 2002. Full implementation of the expanded Fedwire operating day would begin in the second quarter of 2004.

Summary of CUNA’s Position

Discussion

According to the Federal Reserve, the estimated costs for Federal Reserve Banks to open Fedwire three and one-half hours earlier are expected to be negligible and should not affect funds transfer fees paid by depository institutions or the intraday credit fee paid by depository institutions. However, the calculation of intraday credit fees is based on the time the credit is needed, and the credit will reflect the expansion of Fedwire operating hours.

Under the proposal, depository institutions could voluntarily decide to open earlier, but they would not have to do so. The longer hours would affect the calculation of balances at depository institutions. Under the expanded Fedwire operating hours, depository institutions’ Federal Reserve account balances may not reflect all of the previous day’s payment activity because certain activity that is processed and posted later in the day may not be posted to accounts by 9 p.m., the start of the next Fedwire operating day. According to the Federal Reserve, account balances would reflect all of a business day’s activity by about 11 p.m. The Federal Reserve Banks would also notify depository institutions when the day’s payment activity has been processed and is reflected fully on their account balances.

CUNA supports the proposal to expand the operating hours of Fedwire because the proposal should have minor beneficial affects on the operations of credit unions. Credit unions would be able to send wires over a longer time frame and some credit unions based in California could start processing wires for the next day at 6:00 p.m. Moreover, credit unions would not be required to participate in the earlier operating hours, but they would still be able to receive funds transfers sent from participating institutions during those hours.

In addition, CUNA believes Federal Reserve Banks should retain the discretion to grant significant extensions to the Fedwire closing time to help mitigate substantial market disruptions even if they significantly delay the Fedwire opening on the next business day. In particular, such extensions were granted during the week of September 11, 2001 and may be necessary in the future for other unpredictable circumstances. These judgements would have to be made on a case-by-case basis.

CUNA commends the Federal Reserve for providing an extended public comment period on this proposal to expand the operating hours for Fedwire. If you have any further questions, please contact CUNA's Senior Vice President and Associate General Counsel Mary Dunn or me at 1-800-356-9655.

Sincerely,

Michelle Q. Profit
Assistant General Counsel