Authors: Olivier Armantier, Jeffrey Arnold, and James McAndrews

• The Federal Reserve’s Fedwire funds transfer service—the biggest large-value payments system in the United States—has long displayed a concentrated peak of activity in the late afternoon.
  
  
• Theory suggests that the concentration of late-afternoon Fedwire activity reflects coordination among participating banks to reduce liquidity costs, delay costs, and credit risk; as these costs and risk change over time, payment timing most likely will be affected.
  
  
• The sending of large payments late in the day can heighten operational risk by increasing the potential magnitude of liquidity dislocation and risk if operational disruptions were to occur.
  
  
• Armantier, Arnold, and McAndrews quantify how the changing environment in which Fedwire operates has affected the timing of payment value transferred within the system between 1998 and 2006.
  
  
• The study finds that the peak of the timing distribution has become more concentrated, has shifted to later in the day, and has divided into two peaks.
  
  
• The authors attribute the changes in payment timing in Fedwire to several factors:
  
  
• changes in Federal Reserve System policies that govern the provision of daylight overdrafts,
  
  
• variations in the value and volume of payments, and
  
  
• changes in the flow of payments from private sector settlement institutions.
  
  
• The study’s results provide no specific evidence of heightened operational risk attributable to activity occurring later in the day; however, they point to a high level of interaction between Fedwire and private settlement institutions.
  
  

Olivier Armantier is a senior economist and James McAndrews a senior vice president at the Federal Reserve Bank of New York; Jeffrey Arnold was a research associate at the Bank when the article was written.

The views expressed in this summary are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.