The Federal Reserve is boosting its oversight of large U.S. financial institutions, with an eye toward tracking the trillions of dollars crossing the payments system, The Wall Street Journal reported Wednesday (Aug. 26).
The central bank’s oversight comes amid stock market gyrations that show that it is increasingly pressing for banks to monitor their funds, said WSJ, citing unnamed sources.
To that end, the Fed sent communications to some of the largest U.S. financial institutions, among them Bank of America, Bank of New York Mellon, Citigroup and JPMorgan Chase. Those communications centered on the ability of those lenders to monitor payments and fund flows in real time. That initiative goes back to the financial crisis, and the Fed has been looking for banks to be able to account for transactions as soon as they are completed, whereas previously they took hours or even longer to settle.
The key issue at stake in payments processing is “intraday liquidity,” which has been a focal point for the Fed since 2010. Transactions are paid out in the morning but are typically not “settled” until late in the day or at the close of the trading session. Bankers must ensure that there are no “mismatches” in transactions that occur that would cause accounts to fall below minimum mandated thresholds.
Of those banks mentioned, JPMorgan is scheduled to review its payments tracking protocols with the Fed this week. That meeting will touch on new systems and practices the bank has put in place, with internal teams that are installed to oversee payments — an initiative called out by CEO James Dimon who told investors earlier this year that hundreds of employees had been attached to those projects. Sources told WSJ that the bank will look to expand its payments monitoring into currency and securities platforms later in 2015.