Fedwire

Introduction to Fedwire

Fedwire, formerly known as the Federal Reserve Wire Network, is a real-time gross settlement funds transfer system operated by the Federal Reserve Banks in the United States. It allows participating financial institutions to electronically transfer funds between each other on a transaction-by-transaction basis.

Fedwire is predominantly used for large-value domestic and international payments, similar to the UK-based CHAPS, and processes trillions of dollars daily. In 2022, around 196 million transfers were processed using Fedwire, totaling over $1 quadrillion.

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How Fedwire works

Fedwire is owned and operated by the 12 Federal Reserve Banks alongside two other payment systems: Fedwire Securities Service and National Settlement Service. Banks, credit unions, and other financial institutions that maintain an account with a Federal Reserve Bank are all eligible to use Fedwire. A small fee is paid by the sender and recipient of a Fedwire payment to cover operational costs.

Unlike netting systems that aggregate payments, Fedwire processes payment individually, on a transaction-by-transaction basis, and settles them immediately. This means that the transactions are final and irrevocable when processed.

Fedwire processes payments on weekdays from 21.00. ET on the previous calendar day until 19.00. ET. There is a 18.00 ET cut-off point for third-party payment initiation.

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Fedwire versus FedNow

Fedwire and FedNow are both payment systems operated by the Federal Reserve, but they differ in several key aspects. Fedwire processes payments between financial institutions in batches during business hours, while FedNow processes all transactions individually in real time, 24/7, 365 days a year, with instant settlement. Settlement is final and irrevocable with both systems.

Additionally, FedNow is intended for smaller value retail payments and has a $100,000 transaction limit by default that can be raised to a maximum of $500,000. Fedwire, by contrast, is designed for large transactions and does not operate with a transfer limit – it is known to be capable of processing payments over $9.9 billion.

The key difference is that FedNow provides true real-time settlement which Fedwire cannot, making it more suitable for consumer, business, and time-sensitive payments.

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Benefits and drawbacks of Fedwire

Fedwire facilitates reliable fund transfers that are final and irrevocable once processed and is widely used for large-value payments denominated in U.S. dollars. It supports automated processing and straight-through processing capabilities, enabling operational efficiencies, and it also supports various access channels like APIs, files, branches, and online banking.

The main drawbacks of Fedwire are its limited operation hours compared to some other systems and the fact that it is designed for large wholesale payments. There are high implementation and maintenance costs for financial institutions that wish to participate in Fedwire.