Fedwire: An Overview for Depository Institutions


The contents of this article are intended to provide a general understanding of the subject matter. However, this article is not intended to provide legal or other professional advice and should not be relied on as such.



Fedwire® is an electronic funds transfer system operated by the twelve U.S. Federal Reserve Banks. It is used by U.S. banks, credit unions, and government agencies, as well as the Federal Reserve Banks themselves, for same-day funds transfers, otherwise known as wire transfers. U.S. branches of foreign banks or government groups may also use Fedwire, provided they maintain an account with a Federal Reserve Bank.




Fedwire: What You Need to Know

Fedwire is the most widely used wire transfer system in the United States,[i] and the volume of payments it processes monthly is staggering. For example, in the month of May 2021, almost 16 million wire transfers totaling $75.6 trillion[ii] were processed.


It is important for compliance professionals to understand the fundamentals of Fedwire transfers, to be able to interpret payment message data, understand the flow of funds, and more effectively assess transactions for suspicious activity.



What is a Wire Transfer?

The term “wire transfer” came about in the late 1800s in the United States, when the earliest form of wire transfers was made using telegraph networks such as Western Union. Someone who wished to send money to another would give cash to one telegraph office. The telegraph operator would transmit a message to the recipient’s nearest telegraph office, which would pay the recipient in cash. The operators used passwords and code books to authorize the release of the funds to the recipient. In essence, the money was sent “by wire.”


While the logistics have changed over the decades, the underlying principle remains the same: a wire transfer is still a message from one financial institution to another, to debit the sending party’s account and credit the receiver’s account.



Message Settlement

Any electronic funds transfer, whether a wire transfer or some other type, has two primary components: (1) the message; and (2) the settlement of the payment. This concept is important in understanding how different wire transfer systems operate, including Fedwire.


A wire transfer message is a set of instructions specifying who is sending the funds, to whom, and through what financial institutions. The message may also include information about the purpose of the payment, special posting or notification instructions, etc.


The settlement is the process by which the receiving financial institution obtains the funds in order to disperse it to the recipient. As a simple example, imagine Bank A’s customer is sending a $10,000 wire transfer to Bank B’s customer. Bank A sends a message to Bank B stating “post a credit to your customer’s account for $10,000 coming from our customer on this date.” When Bank B posts this credit to its customer’s account, it is owed $10,000 from Bank A. The wire transfer system used by the two banks determines how the message is transmitted and how Bank A and Bank B resolve the amount owed. In this article, we’ll describe how these elements occur via the Fedwire funds transfer system.




In 1915, the twelve Federal Reserve Banks began to transfer funds between parties in their respective regional districts. In 1918, a proprietary system for processing the transfers was developed, which would form the basic structure for the modern Fedwire system.


Today, the Federal Reserve Banks provide a variety of services to their member institutions along with wire transfers. Some of these are centralized check clearing, Automated Clearing House (ACH) settlement, cash and coin, and securities transfers.[i]


Participant institutions maintain a “master account” with their district Federal Reserve Bank. State-chartered banks are assigned to a Federal Reserve Bank based their state; federally chartered institutions are assigned to the district for the state where their headquarters are located.


This “master account” is what is commonly known as the institution’s “Fed account” and is identified by its primary Routing and Transit Number (RTN).[ii] The Federal Reserve maintains a free, online searchable directory of all participant institutions’ RTNs, called the E-Payments Routing Directory.


Fedwire is a credit transfer service, meaning transfers are always a payment from a sender to a receiver. Fedwire cannot be used by one institution to debit, or “pull” funds from another institution, as an ACH debit transaction would. 


A participant bank originates a funds transfer by instructing its Federal Reserve Bank, via Fedwire, to debit funds from its own master account and credit funds to the master account of another participant bank. Today, institutions connect electronically to Fedwire using third-party interface software and/or one of the Federal Reserve’s FedLine® Solutions offerings.[i] Interestingly, an offline option is also offered, whereby an institution may initiate funds transfers and receive acknowledgments thereof by telephone.[ii]



Fedwire Messaging

The format of the payment instruction, or message, is dictated by Fedwire standards. A complex field structure and extensive series of codes must be used to ensure the payment message is processed successfully. Once the payment message is accepted and processed, the sending institution receives an electronic acknowledgment, and the receiving institution is sent advice of credit message with all the payment message’s details.



Fedwire Settlement

What makes Fedwire unique in comparison to its largest competitors (SWIFT and CHIPS)i is that it is a real-time, gross settlement system. Each funds transfer order is settled individually and immediately, without any netting of multiple transactions, to the two institutions’ Federal Reserve master accounts. Funds are therefore available immediately, unlike for example CHIPS end-of-day net settlement process.


The Fedwire business day begins at 9:00 PM Eastern Time (ET) on the preceding calendar day and ends at 7:00 PM ET, Monday through Friday (excluding designated holidays). The deadline for initiating transfers for the benefit of a third party (i.e. a customer) is 6:00 PM ET, but an institution may submit transfers on its own behalf up until the 7:00 PM ET cutoff time.



A Fedwire Transfer Illustration

Here is an illustration of a simple Fedwire funds transfer.


a Fedwire transfer


Mr. Jones is a customer of Pinstripe Bank in New York City. He instructs the bank to send a $5,000 wire transfer to the account of his sister, Mrs. Smith, at Beachside Bank in Los Angeles.


Pinstripe Bank enters a Fedwire message for this transaction, which goes to its Federal Reserve Bank. Pinstripe Bank’s master account is debited, and Beachside Bank’s master account is credited, for $5,000. Beachside Bank receives an advice of credit message with the information necessary to post the transaction to Mrs. Smith’s account.



Transfers with a Non-Participant Institution

What happens when a financial institution that is not a Fedwire participant needs to send or receive a wire transfer? It must partner with a Fedwire participant institution to complete the transfer on its behalf. This type of partnership is commonly known as a correspondent relationship.


Referring back to the previous example, imagine that Pinstripe Bank is not a Fedwire participant. Pinstripe Bank has partnered with First National Bank as their correspondent. Pinstripe Bank will communicate Mr. Jones’s wire transfer payment order to First National Bank in whatever format the two institutions have arranged.


Fedwire Transfers with a Non-Participant Institution


First National Bank then enters the payment message in Fedwire, and its Fed master account is debited. Beachside Bank’s Fed master account is credited, and it receives an advice of credit with the details. At this point, First National Bank and Beachside Bank have settled this funds transfer via their Fed master accounts. But Pinstripe Bank still owes First National Bank for the funds transferred on Pinstripe Bank’s behalf. How do the two institutions settle this activity?


The most common method of interbank settlements is through accounting entries. Pinstripe Bank and First National Bank each maintain ledger accounts reflecting the receivable and/or payable between them. These are called due to/due from accounts, or settlement accounts, or nostro and vostro accounts. (Nostro and vostro are Latin words meaning ours and yours, respectively.) Each institution maintains either one account with a net running total, such as in the illustration below; or it might have separate accounts reflecting what it owes and what’s due to it (this is the nostro/vostro concept).


an interbank settlement with accounting entries


If an incoming wire transfer is made to a Pinstripe Bank customer, it will be settled through First National Bank’s Fed master account. First National Bank will then owe Pinstripe Bank for those funds it received on Pinstripe Bank’s behalf. The amount due from First National Bank to Pinstripe Bank will be reflected in their respective correspondent accounts. This is an example of a deferred net settlement process.



A Fedwire Issue for Compliance Professionals

The Fedwire Funds Service provides the speed, security and certainty that financial institutions need for critical, time-sensitive transactions. Because the settlement of funds is performed in real-time, the credit to the receiving Fedwire participant’s master account is final and irrevocable.


Fedwire has, however, presented a longstanding issue for anti-money laundering and sanctions compliance professionals, which predominantly impacts cross-border wire transfers.


At issue is how Fedwire payment messages display addresses – of the Originator, the Beneficiary, and the financial institutions involved. Specifically, a Fedwire message displays party addresses in three lines of text of up to 35 characters each. These three lines may include information in any order, concatenated, and with or without country information. For example, an Originator’s address on an incoming Fedwire message might look like one of these examples:


123 First St                                            2 Janta Mkt Chopra                    Av Primera N0123
Newton, PA 12345                            EstLBSMarg4000                        4582 SantiagoCHI


When any data, in any format, can be entered on these three address lines, how will an anti-money laundering transaction monitoring system identify the country of origin on any of these wires? How will an OFAC screening system determine whether the transfer originated from a sanctioned country, or if the Originator’s address is a match to that of a blocked party?


Screening systems cannot detect suspicious transactions or potential sanctions violations without a scrubbing and parsing of this concatenated address data into its components (street address, city/locality, state/province, postal code, and country). Such parsing requires sophisticated programming, likely before the transaction reaches the screening systems. Or perhaps these systems could be customized to perform the parsing function.


This address issue also exists with the U.S.-based CHIPS funds transfer system. But interestingly, the third funds transfer system used worldwide, SWIFT, has no such issue. SWIFT’s message formats follow an international standard that provides separate fields for each component of an address.


The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system is a vast messaging network used by financial institutions around the world to quickly, accurately, and securely send and receive funds transfer messages and other communications. Unlike Fedwire’s real-time gross settlement, the SWIFT system relies entirely on correspondent relationships established by over 11,000 member banks.


Fedwire’s address issue arises predominantly with cross-border wire transfers when a SWIFT message must be converted into a Fedwire message.


Many U.S. financial institutions are not members of the SWIFT network. These institutions instead rely on the major U.S. money center banks with global correspondent relationships to process outgoing and incoming cross-border wire transfers on their behalf, using SWIFT.


When an inbound foreign wire transfer comes through a U.S. intermediary via SWIFT, the message must be converted to a Fedwire format so the U.S. intermediary can transfer the funds to the ultimate receiving institution via their respective Fed master accounts. All the distinct address fields on the SWIFT message must be made to fit onto the three 35-character lines of text on a Fedwire message. The reverse is true for an outgoing foreign wire transfer – the U.S. intermediary must parse out the three lines of address text into the individual SWIFT address component fields.



The ISO 20022 Project

The Federal Reserve Banks have long been aware that their payment message formats do not compare with international standards, and that this lack of compatibility creates a number of issues in processing global payments.


Fedwire Address Format vs. International Standard
Fedwire Address Format vs. International Standard
Source: Federal Register 83 FR 31391, July 5, 2018


In October 2017, the Federal Reserve Banks announced a timeline for a phased implementation of the international standard for electronic data transmission, including payment messages by financial institutions, known as ISO 20022. Phase 1 of the implementation was scheduled to begin on November 23, 2020 and end in late 2023. The phased implementation would mean that until complete, some banks would be using the new standard, while others would continue to use the existing Fedwire format.


The international payments community recognized that such an approach would create chaos. As a result, in September 2019 the Federal Reserve Banks announced they were halting the planned ISO 20022 phased implementation. Their website[i] states they are in the process of reassessing the phased migration strategy in favor of a single-day implementation. When a final decision on this new strategy will be announced is currently unknown.




Wire transfers are heavily utilized in the layering phase of money laundering. Wires are also the primary method of transferring funds cross-border, resulting in a higher risk for economic sanctions violations. Compliance professionals should understand the fundamental workings of the primary wire transfer systems used throughout the U.S. and globally in order to accurately interpret the underlying payment messages and properly configure transaction monitoring and sanctions screening software to recognize suspicious transaction activity.


Contact us today to see how we can help you implement or enhance the AML program at your financial institution to proactively monitor Fedwire transactions and more.






[i] Two other systems, CHIPS (Clearing House Interbank Payments System) and SWIFT (Society for Worldwide Interbank Financial Telecommunication), are also used to process wire transfers. CHIPS is a U.S.-based closed system used by the very largest global financial institutions; SWIFT is used by financial institutions worldwide to send funds across borders.


[ii] Source: Fedwire Funds Service Monthly Statistics


[iii] Securities services provided by the Federal Reserve banks include issuance, maintenance, transfer, and settlement services for all marketable U.S. Treasury securities, as well as certain securities issued by other federal government agencies, government-sponsored enterprises and international organizations.


[iv] Formerly referred to as an “ABA” (American Bankers Association) number, based on a numbering system originated in 1910 by that organization.


[v] FedLine Solutions


[vi] This offline, telephone-based option is used by large institutions for disaster recovery purposes, and by very small financial institutions that, for various reasons, do not require an electronic connection.


[vii] Fedwire® Funds Service ISO® 20022 Implementation Center




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