In 1985, the Board of Governors of the Federal Reserve System adopted a policy to reduce the risks that large-dollar payment systems present to the Federal Reserve Banks, to the banking system, and to other sectors of the economy. An integral component of this policy--the Payments System Risk or PSR policy--is a program to control depository institutions' use of intraday Federal Reserve credit, commonly referred to as "daylight credit" or "daylight overdrafts." Over the years, the Board has modified the PSR policy several times to improve its effectiveness.

Initially, the PSR policy required institutions incurring daylight overdrafts in their Federal Reserve accounts as a result of Fedwire funds transfers to establish a maximum limit, or net debit cap, on those overdrafts. In subsequent years, the Board expanded the PSR policy to address the control of risks in activities such as automated clearinghouse (ACH) transactions, book-entry securities transfers, offshore dollar clearing and netting, and certain private-sector securities clearing and settlement systems. The Board has also made a number of modifications to the original program, such as reductions in net debit cap levels and the creation of an exempt status for institutions that incur only minimal daylight overdrafts.

In 1992, the Board approved a significant policy change under which the Reserve Banks would begin to charge depository institutions fees for their use of Federal Reserve daylight credit. The Board planned to phase in the fee over a three-year period beginning in April 1994. The purpose of the fee was to induce behavior that would reduce risk and increase efficiency in the payments system. The Board also modified how it measures daylight overdrafts in depository institutions' Federal Reserve accounts. This measurement method incorporates specific account posting times for transactions that more closely reflect the processing times of transactions affecting an institution's intraday Federal Reserve account balance.

In 2001, the Board revised the PSR policy to permit certain depository institutions to obtain collateralized daylight overdraft capacity above their net debit caps and to modify the net debit cap calculation for U.S. branches and agencies of foreign banks. In addition, the Board rescinded its interaffiliate transfer and Fedwire third-party access policies from the PSR policy because the risks presented by these arrangements are adequately addressed through the supervisory process.

Given the dynamic nature of the payment system, the Board must regularly monitor the effects of the PSR policy to ensure that it efficiently balances the costs and benefits associated with the provision of daylight credit.