Federal Reserve Financial-Services Systems Disrupted for Hours -- 5th Update
February 24 2021 - 06:39PM
Dow Jones News
By Paul Kiernan
The Federal Reserve said Wednesday that an unspecified error
disrupted all of its financial-services systems in an extraordinary
event that took down key payment systems used by banks, businesses
and government agencies for several hours.
Central-bank officials couldn't immediately recall a similar
episode affecting its systems, which had been seen as extremely
reliable. They allow the Fed, which is known primarily for setting
interest rates, to perform its less-public role of acting as a bank
for the nation's banks and for the U.S. government. It handles
tasks including collecting checks, electronically transferring
funds, and selling and redeeming Treasury bills -- services that
were all offline for more than three hours on Wednesday.
"While root cause is currently being evaluated, there is no
indication that the issue is the result of a cyberattack," a
Treasury Department official said in a statement sent to banking
regulators at 1:47 p.m. ET. A Treasury spokeswoman had no immediate
comment.
The Fed sent an alert to users of its financial services at
12:43 p.m. of "a possible issue or disruption to multiple
services." A subsequent alert said that Fed staff became aware of
"a disruption for all services" beginning around 11:15 a.m.
"We acknowledge that payment deadlines are impacted and will
communicate remediation efforts to our customers when available,"
the Fed said.
The full impact of the disruption couldn't immediately be
discerned. But the Treasury memo to regulators said it prompted the
Payments Risk Committee -- a private-sector group of senior bank
managers that is sponsored by the New York Fed -- to initiate
"emergency communications protocols." Treasury said it would
provide the group with updated information through periodic
conference calls.
The disruption caused a payment backlog to build up at banks,
which they began working through once the issue resolved. The Fed
told clients that "the backlog of files may take time to
clear."
Aaron Klein, a senior fellow at the Brookings Institution, said
the glitch underscored broader problems with the Fed's payments
systems, in which checks can take two business days to clear.
Central banks in other countries -- including England, Brazil and
Mexico -- implemented instant payment systems more than a decade
ago. The Fed doesn't anticipate doing so until 2023.
"For Americans who were counting on their paychecks being
available Friday the 26th, if this glitch means that my payment
isn't going to turn up until March 1, it could result in millions
of dollars in overdraft fees for people living paycheck to
paycheck," Mr. Klein said. "It's not just the fact that it
happened, it's the fact that it happened on Wednesday the last week
of the month that might make it significant."
A Fed spokesman said the central bank is extending its hours of
operations to clear the backlog of transactions and "would not
expect there to be financial consequences for individual account
holders because of the temporary disruption."
One of the services taken offline was the Fedwire Funds Service,
which the Fed describes as "the premier electronic funds-transfer
service that banks, businesses and government agencies rely on for
mission-critical, same-day transactions." Entities use the service
to send or receive payments, settle positions with other financial
institutions and to submit tax payments, among other activities. It
processed an average of 727,313 transactions per day in 2020, with
an average value of $4.57 million.
Also affected were FedACH, an automated clearinghouse network
that enables debit and credit transactions, and Fedwire Securities,
which provides transfer and settlement services for securities
issued by the U.S. Treasury, government agencies and
government-sponsored housing enterprises.
The first service to be restored -- at 2:17 p.m. ET -- was the
Fed's central bank programs, which include setting interest rates
and allowing financial institutions to review and manage the money
they hold at the Fed, called reserves. Fedwire and FedACH were back
shortly before 3 p.m.
The Treasury Department's memo to regulators said the disruption
"required a reboot of servers impacting all payment channels."
--Andrew Ackerman, Michael S. Derby and Orla McCaffrey
contributed to this article.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
February 24, 2021 18:24 ET (23:24 GMT)
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