Fed offers no specifics on what caused banking system to crash

Government officials unlikely to offer deeper explanation of what went wrong

One day after the crash of the U.S. Federal Reserve bank’s electronic payment system — which left banks, businesses and government institutions unable to send and receive funds — officials were sluggish to explain what exactly caused the mishap.

»PREVIOUS COVERAGE: Federal Reserve banking system back online after nationwide outage

Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, said Thursday the outage, which lasted several hours, was the result of an internal error.

Raphael Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta, speaks to members of the Harvard Business School Club of Atlanta in Atlanta on Feb. 19, 2020.

Credit: Elijah Nouvelage/Bloomberg

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Credit: Elijah Nouvelage/Bloomberg

But the same lack of specifics was known Wednesday, with the Federal Reserve Bank in Richmond announcing that an “operational error” had caused the disruption that sent ripples throughout the nation’s financial services industry.

“A Federal Reserve operational error resulted in disruption of service in several business lines,” the central bank said in a statement after first becoming aware of the glitch.

The Fed was unlikely to offer any deeper explanation of what went wrong, Axios reported.

Although there was no indication of malware, hacking or foul play, the matter remains under investigation.

“While root cause is currently being evaluated, there is no indication that the issue is the result of a cyberattack,” a Treasury Department official said in a statement sent to banking regulators Wednesday.

The brief-but-extraordinary outage may have been a first for the nation’s central bank, which sets interest rates and serves as the primary lender for the U.S. government and all the name-brand banks across the country, including Wells Fargo and Truist.

The payment processing system is typically reliable as the critical framework of U.S. banking, where billions of dollars flow daily.

The implications of the system going down were immediately palpable, with the complete loss of the ability to make transactions including mortgage payments, direct deposits, Social Security payments, income tax refunds, as well as utility payments and wire transfers.

Desperate to get the system up and running again, the Fed tried turning it off and on again, but it didn’t work, CNBC reported.

Most if not all of the payment services have since been restored.

Some financial experts said Wednesday’s outage exposed weaknesses in the nation’s electronic infrastructure and emphasized the need to shore up the federal protocol for making instant payments.

Some feared there could be more fallout in the days ahead.

“For Americans who were counting on their paychecks being available Friday the 26th, if this glitch means that my payment isn’t going to turn up until March 1, it could result in millions of dollars in overdraft fees for people living paycheck to paycheck,” said Aaron Klein, a senior fellow at the Brookings Institution, who spoke with The Wall Street Journal.

A Fed spokesman, however, said the central bank would work to clear any backlog in transactions and “would not expect there to be financial consequences for individual account holders because of the temporary disruption.”