Fed Rules on Overdrafts Worry Firms --- Payments Made Without Deposits To Be Curbed
Each day, banks electronically make more than $120 billion in payments for corporate customers without funds to cover them.</br></br>But corporate treasurers and cash managers, always looking to get maximum mileage out of cash flow, are worried about new Federal Reserve Board guidelines that will put a daily cap on the amount of these "daylight overdrafts" a bank or thrift can incur on a customer's behalf.</br></br>Banks and thrifts offer companies what amount to interest-free, intraday loans by making large payments electronically for corporate, institutional and other customers who temporarily have overdrawn their accounts. When a bank makes a payment and incurs an overdraft on behalf of a customer, it is tying up money that could be loaned or invested elsewhere.</br></br>Banks expect these customers to settle their accounts by the end of the day. But the Fed is worried about what might happen to a bank if a big customer didn't settle up. So under the new guidelines, a company might not be able to make payments if its bank has reached its daily overdraft cap.</br></br>"This will have major consequences on corporate America," asserts Richard D. Richardson, director of cash management for Hardee's Food Systems Inc., Rocky Mount, N.C.