FedWire (Fedwire Funds Service) is a RTGS high value payment system run by federal reserve banks in the United States.
As Fedwire is an RTGS, payments are settled immediately and are irrevocable. Fedwrite transfers trillions of dollars daily. This is advantage over its nearest competitor, CHIPS, which uses an end-of-day net settlement process.
Fedwire is used banks, businesses, and government agencies for large, same-day transactions. It is a credit transfer service, so transfers are always a payment from a sender to a receiver. It does not have a direct debit facility so a financial institution cannot pull funds from another financial institution.
In order to be eligible to participate in Fedwire a financial institution must have an account with one of the 12 federal reserve banks. If a financial institution does not have an account with the federal reserve, it must partner with one that does. This is known as a correspondent relationship.
How does Fedwire work?
A sender bank initiates a funds transfer by instructing its Federal Reserve Bank, to debit funds from its own master account and credit funds to the master account of another recipient bank.
The federal reserve bank will holds account for both sender and recipient and settles transactions individually and immediately.