Circle Comments on Federal Reserve’s Proposal to Extend Payment Service Hours

This
week,
Circle
submitted
its
response
to
the
Federal
Reserve
Board’s
proposal
to
expand
the
service
hours
of
its
two
large-value
payments
services:
the
Fedwire
Funds
Service
(Fedwire)
and
the
National
Settlement
Service
(NSS).
According
to

Circle,
the
Fed’s
proposal
presents
a
meaningful
opportunity
for
U.S.
financial
regulators
to
revisit
and
upgrade
the
settlement
architecture
underpinning
the
U.S.
financial
system.

Potential
Benefits
and
Challenges

Many
countries
currently
operate
national
payments
systems
on
a
24x7x365
basis,
demonstrating
the
ability
to
offer
and
support
safe
and
reliable
public
and
private
fast-settlement
systems,
some
with
upwards
of
a
decade
of
successful
track
record.
Expansion
of
Fedwire
hours
to
22×7
would
be
a
much-needed
upgrade
to
the
U.S.
wholesale
payments
system.
It
also
would
offer
incremental
gains
to
the
already
thriving
suite
of
24×7
retail
payment
services
that
American
consumers
use
daily.
This,
in
turn,
will
help
reduce
some
of
the
operational
challenges
associated
with
weekend
and
bank
holiday-related
settlement
risks.

Need
for
Broader
Upgrades

As
noted
in
Circle’s
response,
however,
the
expansion
of
service
hours
will
not
address
some
of
the
most
significant
challenges
affecting
everyday
consumer
payments.
In
fact,
the
expansion
of
services
has
the
potential
to
exacerbate
existing
risks
and
transmission
mechanisms
from
the
banking
to
the
payments
sectors.
As
the
2023
U.S.
banking
crisis
demonstrated,
liquidity
bottlenecks
within
the
banking
sector
can
have
widespread
and
significant
reverberations
throughout
the
payments
and
fintech
space.
For
this
and
other
reasons,
Circle
has
long
advocated
for
regulators
to
more
fully
consider
unbundling
banking
and
payments.

Circle
continues
to
urge
the
Fed
to
take
a
holistic
view
and
ensure
that
efforts
to
modernize
the
wholesale
settlement
system
address
the
most
material
risks
before
introducing
potential
new
ones.
In
particular,
the
challenges
affecting
retail
payments
can
only
be
solved
through
expanding
access
to
the
Fed–
i.e.,
providing
non-bank
payments
institutions
access
via
a
“master
account”
at
the
Fed.
Extending
Fed
master
accounts
to
non-bank
payments
firms
is
critical
for
modernizing
payment
infrastructure
in
the
U.S.
and
addressing
large
liquidity
demands
on
the
banks
while
also
enhancing
the
stability
of
well-regulated
payment
institutions.
Importantly,
commercial
banks
stand
to
benefit
from
reducing
their
role
in
payments
as
this
would
enable
them
to
redeploy
cash
towards
other
forms
of
intermediation.
For
example,
by
freeing
up
payment-related
reserves,
banks
can
focus
more
on
their
lending
activities
that
are
vital
to
the
American
economy.

Circle’s
Advocacy
for
Modernization

Payments
innovations
such
as
Circle’s
USDC
operate
on
a
24x7x365
basis
and
have
a
proven
track
record
as
a
safe
and
regulated
form
of
always-on
payments.
Circle
continues
to
encourage
regulators
as
they
seek
to
modernize
the
global
financial
architecture
to
take
pragmatic
and
holistic
steps
–
such
as
untangling
payments
from
banking
–
to
make
the
financial
sector
both
more
efficient
and
more
resilient.

View

Circle’s
full
response
to
the
Fed’s
proposal
to
expand
the
operating
hours
of
Fedwire
and
NSS.

Image
source:
Shutterstock