Federal Reserve and Major Banks Pilot Tokenized Liability Network Settlement → Adoption

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Briefing

The New York Federal Reserve Innovation Center, in collaboration with a consortium of major U.S. commercial banks, successfully executed a proof of concept for a Regulated Liability Network (RLN) utilizing Distributed Ledger Technology. This initiative fundamentally re-architects the wholesale payment mechanism by simulating the use of tokenized commercial bank deposits and central bank liabilities for atomic, real-time settlement, thereby eliminating the counterparty and settlement risk inherent in the current T+1/T+2 system. The PoC included nine of the world’s largest financial institutions and integrated the global financial messaging provider SWIFT to test cross-border interoperability.

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Context

The traditional wholesale payment and settlement architecture relies on a complex, multi-intermediary chain, resulting in significant frictions around speed, cost, and accessibility, particularly for cross-border transactions. The prevailing system necessitates delayed, multi-step settlement (T+1 or T+2) and requires substantial pre-funding, which locks up liquidity and introduces considerable counterparty risk exposure across the global financial market infrastructure. This operational challenge directly impedes capital efficiency for all participants.

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Analysis

This DLT integration directly alters the core Wholesale Interbank Settlement system. The cause-and-effect chain is clear → tokenizing commercial bank liabilities creates a single, shared, and immutable ledger for money and assets, enabling Delivery-versus-Payment (DvP) and Payment-versus-Payment (PvP) settlement to occur atomically and instantaneously (T+0). For the enterprise, this value is realized through the immediate freeing of pre-funded capital, a dramatic reduction in operational costs associated with reconciliation and failure resolution, and the mitigation of systemic counterparty risk, which is a key strategic advantage in volatile global markets. The shared ledger design promotes interoperability, which is critical for future digital asset markets.

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Parameters

Project Name → Regulated Liability Network (RLN) Proof of Concept
Lead Institution → Federal Reserve Bank of New York (NYIC)
Core Participants → BNY Mellon, Citi, HSBC, Wells Fargo, SWIFT
Technology Vendor → SETL with Digital Asset
Use Case Focus → Wholesale Interbank and Cross-Border Payments
Key DLT Function → Atomic Settlement of Tokenized Liabilities

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Outlook

The next phase involves moving beyond simulated data to a pilot using live, regulated digital assets and further testing the synchronization interface with existing Real-Time Gross Settlement (RTGS) systems. This adoption is establishing a new industry standard for the digital settlement of regulated liabilities, creating second-order pressure on non-participating financial institutions to rapidly modernize their treasury and payment rails. The successful RLN framework could ultimately serve as the blueprint for future global financial market infrastructure, potentially enabling the seamless integration of tokenized real-world assets.

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Verdict

The successful RLN PoC confirms that DLT is the architectural necessity for achieving true T+0 settlement and superior capital efficiency across the global financial system.

Signal Acquired from → newyorkfed.org