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February 25, 2021

Federal Reserve payment system crashes due to “operational error”

By Mohamed Dabo

The Federal Reserve’s electronic payment system known as Fedwire was thrown into turmoil for several hours on 24 February as multiple services were disrupted.

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Fedwire is a system the central bank uses to transfer money between banks. It carries out millions of financial transactions daily, including payroll, tax refunds, and interbank transfers.

In a statement, the Fed blamed the disruption on an “operational error” and said it was working to restore services and communicate with customers.

Banks, businesses, and government agencies rely on Fedwire to transfer vast sums of money around the US banking system. More than $3trl was transferred daily using Fedwire during the fourth quarter of last year.

Fed staff “became aware of a disruption for all services” beginning around 11:15 a.m. ET, the Fed said on its website. “Our technical teams have determined that the cause is a Federal Reserve operational error.”

“All funds remain secure while we investigate the issue”

The Fed now says it has “taken steps to help ensure the resilience” of Fedwire and national settlement service applications “including to the point of failure.”

At this point, it remains unclear how many banks or companies were affected by the outage.

Gemini, the cryptocurrency exchange backed by the Winklevoss twins, said some of its systems are experiencing outages because of the Fed disruption. “All funds remain secure while we investigate the issue,” Gemini said in a status update.

By 7:27 p.m. New York time, all services were restored, the Fed said.

Déjà vu

The outages affected the automated clearinghouse system known as FedACH and the Fedwire Funds interbank transfer service.  Several other systems comprising the US payment infrastructure also suffered from the outage.

A key component of the system, ACH processes batches of electronic funds transfers. These include payroll, social security benefits, tax refunds, corporate payments to vendors and utility payments.

The commercial service handled 62.1 million transactions daily in 2019, the latest year for which data is available.

The Fed’s system has suffered problems before.

In 2019, the FedWire interbank funds transfer service went down for about three hours. The Fed blamed that outage on “an internal technical issue,” but declined to provide more details.

A Treasury Department’s memo to regulators said the disruption “required a reboot of servers impacting all payment channels.”

 

 

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Prepare for changes in the Payments market

 The Payments market has seen drastic changes in the past few years, with this only expected to continue. What does your company need to do to prepare for what’s to come? GlobalData’s Payment Trends for 2022 report explores the key trends in technology, consumer habits, and regulations shaping the market. We also identify the leading companies in this changing market, giving you a competitive market outlook. This report covers the impact of:
  • ESG
  • E-commerce
  • Mobile payments
  • Alternative payment rails (Real-Time Payments, Blockchain, BNPL)
  • Fraud & Cybersecurity
  • Regulations
Download the report now to learn essential strategies to maximize your growth in the face of rapid change.
by GlobalData
Enter your details here to receive your free Report.

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