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Better Markets Urges the Fed to Rethink Payment Systems Proposal that Dangerously Expands Fed Lending Access to Undercapitalized and Poorly Run Banks

FOR IMMEDIATE RELEASE
Monday, August 2, 2021
Contact: Doug Walker at 202-618-6430 or dwalker@bettermarkets.com 

WASHINGTON, D.C.—Phillip Basil, Director of Banking Policy for Better Markets, released the following statement on the filing of a comment letter to the Federal Reserve Board on proposed changes to their Payment System Risk policy:  

“Today Better Markets filed a comment letter to the Federal Reserve highlighting the risks that would be created by the 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 to the policy would create new and dangerous risks to the system without providing appropriate justification. The most dangerous of these changes would be effectively allowing banks with poor supervisory ratings and/or undercapitalized banks to have access to collateralized overdrafts. Banks that are weak or poorly-run represent a higher level of risk to the Fed, and such banks historically have been appropriately excluded from standing overdraft capacity.

“In its comment letter, Better Markets urges that the exclusion of such banks from standing overdraft capacity, collateralized or uncollateralized, must be maintained along with other risk-management practices that are proposed to be removed. Additionally, we strongly encourage the Fed to provide sufficient supporting justification for public comment.” 

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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