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Federal Reserve outage causes payment delays

Automated clearing house froze for over three hours on Wednesday

Federal Reserve insignia on overlaid on money

Settlements between US banks and other financial services came to a standstill for over three hours yesterday when the Federal Reserve's automated clearing system suffered an outage.

The US central bank said the issue was the result of an operational error. It became aware of the problem at around 11:15 a.m. Eastern Time. Services seemed to be operational again at 2:45 p.m.

The outage reportedly affected several Federal Reserve services, the most important of which was its automated clearing house (ACH) system. This is a nationwide network that processes electronic credit and debit transfers between depositors. It’s the financial plumbing for critical payments in the US, including direct debits for mortgage payments and utility bills. It’s also used extensively for converted check payments and internet-based payments.

The Fed is one of two national ACH operators, the other being the Electronic Payments Network. 

According to the National Automated Clearing House Association (NACHA), which administers the overall ACH network, it saw record growth in 2020, with the number of payments rising 8.2% to 26.8 billion, and the value of those payments rose 10.8% to $61.9 trillion. 

The COVID-19 pandemic has placed extra pressure on the payments network, which has also been processing direct deposits for economic impact payments that have been especially important during the pandemic.

Other services impacted included Fedwire, which handles wire settlements; FedCash, which distributes currency and coins; and FedLine, which delivers direct IP-based access to payment services. FedWire handled over 50 million transfers in Q4 2020, valued at $205 trillion.

The problem sparked delays at financial institutions. Cryptocurrency trading platform Gemini reported that "USD ACH transfers and FedWire are currently delayed due to an outage at the Federal Reserve. All funds remain secure while we investigate the issue."

In April 2019, FedWire suffered a multi-hour outage. That December, the Federal Reserve also suffered a disruption in the ACH service that delayed transactions for two days. The Fed blamed the incidents on internal problems.

The outage’s timing was unfortunate for Federal Reserve chair Jerome Powell, who was testifying to Congress this week. He described a project to develop a digital currency and other consumer-focused efforts that would give unbanked people greater access to payment systems.

The Federal Reserve is also planning to offer more payment services. It’s currently working on a new service called FedNow, which will facilitate nationwide instant payment services by financial institutions. The near real-time service, which will operate through the organization's FedLine network, will launch in 2023.

The Fed suspects no foul play in the latest outage.

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