Although the U.S. Federal Reserve asked for feedback on the topic of building a faster payments system back in October 2018, Federal Reserve Board Chairman Jerome Powell told Congress last week that the regulator has not made any decision if it will build its own system, or when this decision would be made.
In testimony before the House Financial Services Committee and the Senate Banking Committee last week, Powell said the Fed is continuing to review hundreds of comment letters and that he is considering several factors whether or not the Fed will move forward, according to a post-testimony write-up by R.J. Lehmann, director of finance, insurance, and trade policy at the R Street Institute.
“One is just the requirements under the Monetary Control Act, and there's also just the big policy question, which is, is there a role here? There are people who feel strongly that there is a role here for us, and there are others who feel not,” Powell told House lawmakers.
In response to questioning from Rep. Ayanna Pressley, D-Mass., Powell admitted that the Fed would not meet the task force’s goal of a “faster, ubiquitous, broadly inclusive, safe, highly secure and efficient” payments system by 2020.
Lawmakers expressed concerns over whether The Clearing House and Fed platforms will be interoperable. “The current situation in Europe is that dual real-time payment systems operated separately by the European Central Bank and private banks do not communicate with one another, making instantaneous clearing more difficult and forcing financial institutions to run multiple systems,” writes Lehmann.
Lawmakers are concerned about security and Big Data, too. This was a point highlighted during the House hearing by Rep. Denver Riggleman, a Republican from Virginia, a former Air Force officer and National Security Agency contractor. “Based on my experience in big data, when you are talking about what I have had to do in the military with electronic warfare actually trying to interoperate systems, I think this would create enormous inefficiencies and impose needless cost on the American taxpayer and the private sector,” Riggleman said.
Despite the Fed’s demurral about its real-time payments proposal, Lehmann warns that such a solution could prove disruptive to the banking arena and its clients.
“Unless or until a genuine market failure is found, Chairman Powell should take care not to fix what he himself testified is not broken.”
Read R.J. Lehmann’s entire commentary on The Washington Examiner.