What is a Fedwire?

Published by Thomas Herold in Banking, Economics

'Fedwire' is explained in detail and with examples in the Banking edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Fedwire represents an RTGS, or real time gross settlement system. This settling system pertains to central and commercial bank funds which are utilized within the United States. The Federal Reserve Banks employ it to electronically settle all of their final payments between the various member institutions. All final payment settlement is performed exclusively within U.S. dollars.

Fedwire is actually operated and owned by all 12 of the American Federal Reserve Banks. This networked system of payments and electronic processing works exclusively between the member of the Federal Reserve system banks and the regional 12 Reserve Banks. The participants in the system, which are Fedwire member banks, can also use it between each other as well.

Fedwire members include two groups. The first of these are the financial institutions of the U.S. which are depository banks. Besides this, American branches of many approved foreign financial institutions and also allowed government groups are members. They must keep an active account with one of the Federal Reserve Banks to maintain their membership as either foreign or domestic entities.

The actual Fedwire system has been newly designed in recent years. Now this national clearing system works in high technology and automated real time for all of the businesses which are involved in the Federal Reserve financial network. This includes nearly 10,000 banks. The system allows a single bank to wire funds over to a fellow domestic bank practically instantly. The Federal Reserve has its own uses for the system of course. They deploy its cutting-edged technology in order to ascertain credit. They also orchestrate the effective movement of capital throughout the nation with it.

Many people think of the Federal Reserve as a branch of the U.S. government, yet this is not truly the case. It is a private company which delivers the centralized banking system to the United States. As the directors and board members are appointed by the President though, this makes it more like a GSE government sponsored enterprise. Many critics have complained about the private nature of the United States central bank over the years. The ones who are closest to it refute these objections by declaring it to be a one of a kind mixture that is at once private and public administration which no single private entity owns and controls.

The 12 regional Federal Reserve Banks serve a vital function for the nation in helping to oversee and implement the financial policy of America. All of the commercial banks which are federally chartered financial institutions are required to hold stock in the various Federal Reserve banks.

Thanks to the new Fedwire setup, banks can count on a true real time gross settlement of their funding transfers. It means that the automated financial transfers are not only seamless, but they complete rapidly. There are many effective uses to the impressive system.

Financial institutions are able to effect payments to the SEC Securities Exchange Commission using it. Since banks and other financial institutions have to regularly remit fees to the SEC for its oversight of Wall Street and the stock market, this is a convenient means of transferring payments to them. Many of the banks choose to use the system for just such a purpose.

The member banks utilize various protocols and “tags” to ensure that they are creating standard transactions on the electronic network. Part of what makes this system so technologically advanced is it even searches out problems in resulting syntax which might delay a transaction between member banks or with the 12 regional Federal Reserve Banks in the system.

This electronic funds settling system of the Federal Reserve proves to be much like those deployed in other nations around the world. A number of countries already had their own financial networks like this. Still others are in the process of being created, designed, and developed. Such financial settlement systems drag antiquated financial regimes into the current century. This is appropriate since a huge amount of wealth and cash are already handled by automated and digital electronic systems and technologies worldwide.

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The term 'Fedwire' is included in the Banking edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.