Yesterday, Federal Reserve systems that execute millions of financial transactions a day were disrupted by what appeared to be some sort of internal snafu. The systems were down for about four hours and are used for lots of different purposes, including payroll, tax refunds, and interbank transfers.
“Our technical teams have determined that the cause is a Federal Reserve operational error,” the Fed said on Wednesday on its website. “The Federal Reserve Banks have taken steps to help ensure the resilience of the Fedwire and NSS applications, including recovery to the point of failure.”
- For a few hours on Wednesday, the Fed attributed an "operational error" to multiple services going down, including its automated clearinghouse system, which connects depository institutions sending electronic credit and debt transfers.
- Along with the Fed's ACH service, Check 21, FedCash, Fedwire and the national settlement service were also impacted.
- The outage occurred the same week Fed Chairman Jerome Powell spoke on Capitol Hill about the central bank's intention to develop a “digital dollar.”
- US Treasury Secretary Janet Yellen, a former Fed chair, this week called Bitcoin an "extremely inefficient" way to conduct transactions.
- Two other significant disruptions to the Fed’s payment services occurred in 2019.
In December 2020, Fedwire Funds handled more than 835,000 transactions a day on average, with a daily average dollar volume of $3.4 trillion.
The weak point of centralized payment networks
The fintech industry immediately contrasted the Fed's struggles to the uptime of the Bitcoin network.
The irony of the Fed's issues yesterday is that it wasn't just traditional financial services impacted when the Fed went down -- cryptocurrency exchanges like Gemini, Kraken and possibly Coinbase also saw delays in Fedwire and ACH transactions.
Yesterday's outage comes as the Fed's instant payments initiative is gathering steam. It’s developing its own same-day settlement payment system called FedNow. It is expected to directly compete with an industry-run payments system started in 2017.
The FedNow initiative for faster payments mentioned last month that it had 110 participants, including firms like JPMorgan Chase and Citi, in the program that's expected to take a few years to roll out.
CHIPS, a private-sector alternative to Fedwire run by The Clearing House, continued to operate normally, spokesman Greg MacSweeney told Reuters. CHIPS handles about $1.5 trillion a day.