Prompted by these concerns, the Federal Reserve Board and private-sector groups began studies of the causes and potential means of controlling payment system risk, including the risk arising from daylight overdrafts in Federal Reserve accounts.
During the period between the imposition of caps in March 1986 and the implementation of fees in April 1994, daylight overdrafts in Federal Reserve accounts increased almost continuously.
When the borrower and the lender do not use the same clearing bank, this process involves tranfers of securities against payment via the Fedwire securities transfer system and typically generates overdrafts in the Federal Reserve accounts of the clearing banks.
With the exception of activity that adds or removes intraday reserves from the entire banking system, such as open market operations, changes in intraday float, or changes in Treasury cash balances, Federal Reserve accounts constitute a "closed" system.
In the six months after the implementation of fees, positive intraday balances held by depository institutions in Federal Reserve accounts averaged about $70 billion, compared with $90 billion in the preceding six months.
In particular, the securities clearing banks, who have experienced the largest reductions in overdrafts, have charged fees to their securities-dealer customers whose market activity, particularly RP transactions, creates overdrafts in the Federal Reserve accounts of the clearing banks.
Greater use of private payment systems could further trim daylight overdrafts in Federal Reserve accounts by reducing the volume of funds transfers through the Federal Reserve.
Greater use of private systems for securities transfers could also reduce use of daylight credit in Federal Reserve accounts.
Moreover, their use in large-value transfers would not necessarily reduce daylight overdrafts in Federal Reserve accounts relative to current methods because of differences in the intraday timing of payments posted to Federal Reserve accounts.