May all institutions that have a Federal Reserve account incur daylight overdrafts?
A daylight overdraft occurs when an institution’s Federal Reserve account has a negative balance at any point during the business day. Most depository institutions that have a Federal Reserve account may incur daylight overdrafts, but certain types of financial institutions that are permitted to have Federal Reserve accounts present special risks and thus are not allowed to incur overdrafts. Examples are Edge and agreement corporations, bankers’ banks (including corporate credit unions) that are not subject to reserve requirements, limited-purpose trust companies, institutions with a zero net debit cap, and (beginning July 20, 2006) government-sponsored enterprises and certain international organizations for which the Reserve Banks act as fiscal agents. Most of these institutions lack regular Discount Window access. Institutions that do not have regular access to the Discount Window should not incur daylight or overnight overdrafts in their Federal Reserve accounts.
