If the Fed wants banks to embrace a faster-payments future - and realize the tangible, life-changing benefits that such a future would be for consumers - it's going to have to make them do it.The Lamb must keep their Cult flourishing, their Followers faithful, and their power unchallenged as they crusade in this free content expansion, Relics of the Old Faith. In other words, it's a matter of insufficient motivation. If that's the case, the Fed should be telling Congress that it's up to them to help make faster payments a reality, because so long as all of this is optional, banks will slow-walk embracing faster payments because it is more profitable to do so. Let's set all of that aside and assume for a moment that the Fed does not actually have the power to do what I'm suggesting they do. But it does say that "wire transfers … shall be available for withdrawal not later than the business day after the business day on which such cash is deposited or such funds are received for deposit." And who decides what counts as a wire transfer? "The term 'wire transfer' has such meaning as the Board shall prescribe by regulations," the statute says. Speaking in Kansas City in 2019, former Fed vice chair Lael Brainard said the central bank does "not have regulatory authority over the pricing set by a private-sector system or to require a private-sector system to extend the service to banks of all sizes, particularly the last mile." Acknowledging that some other countries have given their central banks that authority, Brainard said "this is not the approach that Congress has taken," instead leaving the Fed with a "role as an operator."Īnd it is true that EFTA doesn't mention pricing or faster payments - the terminology in the statute primarily deals with checks and wire transfers. It's worth noting that the Fed does not think it has the authority to tell banks what networks they have to use. But costs associated with joining RTP or FedNow are at the very least negotiable, and the transaction costs will similarly benefit from the greater volume that would follow from expanded membership. There is a legitimate question of costs associated with joining RTP or FedNow, and the separate but related question of transaction costs, which almost no matter what are greater than what banks have been used to with the horse-and-buggy ACH networks. That is because bank customers are used to payments taking several days to clear and accustomed to paying extra money when charges come in when they have insufficient funds. But making banks use faster payments for everyday transactions would change customers' expectations about what is possible in the payment settlement world.īy contrast, not issuing such a mandate would relegate faster payments - this shiny new service that the Fed has either been deliberating about whether to build or building for a decade or more - to being a premium service reserved for special occasions or emergencies. The last remaining step to making FedNow a success is revising Regulation CC to require banks to execute transactions using the fastest means available to them.įor many banks, that method may very well be the old tried-and-true ACH batch clearing networks - it is the fastest available, after all, if you have not joined RTP or FedNow and have no intention of doing so. The work of bringing faster payments to the United States, however, is not yet done. They can also get away with not doing stuff they're supposed to do for a long time - even indefinitely. Agencies can take a long time to develop regulations even when sufficiently motivated, but they can also get into trouble if they drag their feet when they're not. The same phenomenon is true of government agencies when Congress mandates that they issue some or other regulation to solve a problem. But like it or not, kids have to go to the dentist sooner or later, and stalling does nothing but delay the inevitable. This phenomenon can be explained as a matter of insufficient motivation - going to the pool is fun, going to the dentist is not. When it's time to go to the dentist, they turn into the people on TV commercials who can't make an egg or carry a box of spaghetti. When it's time to go to the pool or a birthday party, their shoes are on, bags are packed and they're ready to go. My kids - and this is true of all other little kids I know - can be selectively lazy.
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