Fedwire
Fedwire is the Federal Reserve’s real-time gross settlement system for US dollar wires. Each payment is settled on its own, for its full amount, across the banks’ accounts at the Federal Reserve, and it is final the moment it settles.
Also called: Fed wire · wire transfer
Fedwire, properly the Fedwire Funds Service, is the Federal Reserve’s real-time gross settlement system for US dollars. Banks hold accounts at the Federal Reserve. A Fedwire payment debits the sending bank’s account and credits the receiving bank’s, one payment at a time, in central bank money.
The distinction that matters is between an instruction and the money itself. SWIFT is a messaging network: it carries the instruction and nothing else, and the value has to be settled somewhere else, usually across correspondent accounts. Fedwire carries the instruction and moves the dollars in the same operation. When a US bank says a payment went out by wire, Fedwire is normally where the dollars actually changed hands.
Not every dollar wire uses it. CHIPS, operated by The Clearing House, offsets payments among its participants through the day and settles the net positions, which needs far less liquidity for large flows. ACH is the batch alternative for lower-value domestic transfers.
Gross settlement has a price. The sending bank needs the funds in its Federal Reserve account at the instant the payment is released, which is why wires queue and why banks manage intraday liquidity closely.
In practice
Each Fedwire payment settles individually and finally, which is why it cannot simply be recalled. A recall is a request asking the receiving bank to persuade its customer to send the money back, not an instruction it must obey, and that is why losses from wire fraud are usually permanent.
Example
A company wires funds to a supplier and two hours later discovers the account details came from a fraudulent email. Its bank sends a recall request. The receiving bank cannot reverse the credit on its own: the payment settled across Federal Reserve accounts the moment it was released, and the money is now its customer’s to return or to refuse.
Commonly confused with
| Term | How it differs |
|---|---|
| ACH | ACH settles batches of low-value payments on a schedule and allows returns; Fedwire settles each payment separately and finally. |
| SWIFT | SWIFT carries the payment instruction between banks; Fedwire carries the instruction and moves the dollars across accounts at the Federal Reserve. |
See also
- ACHACH is the batch system for domestic bank-to-bank debits and credits in the United States. Payments are grouped into files, exchanged between banks and settled on a processing schedule rather than one at a time, which makes ACH cheap, slower than a wire, and reversible within defined return windows.
- RTGSRTGS stands for real-time gross settlement: a system that settles each payment individually and finally in central bank money, rather than offsetting many payments against each other and settling only the difference at the end of a cycle.
- SWIFTSWIFT is a cooperative messaging network that banks use to send each other standardized instructions about payments. It does not hold funds and it does not move them; the money moves separately, through the accounts banks keep with one another.
- SettlementSettlement is the point at which value actually moves between parties and the obligation between them is discharged. It is a separate step from clearing, which only works out who owes what, and from finality, which is the moment the transfer can no longer be reversed.
- Correspondent BankingCorrespondent banking is an arrangement in which one bank holds deposits for another bank and makes and receives payments on its behalf, normally so the second bank can reach a currency or a market where it has no branch or license of its own.