What is Daylight Overdraft?

Legal Definition
In the United States, the Daylight Overdraft (also called as intraday overdraft) is a system in which “allows qualifying banks to overdraw on their Federal Reserve accounts in order to make payments via Fedwire. Banks can acquire overdrafts throughout the day to make payments, but must ensure that their accounts are not in a negative position at the end of the day.”

An example of a daylight overdraft is making a $100 deposit at an Automated teller machine which allows for instant withdrawal of the first $100 deposited. This ATM transaction will post the next day; however if you were to transfer the funds from this account to another account using other means (internet, telephone and etc.) the funds would be withdrawn that day and will post your account negative the next day.

Another example is the Federal Reserve policy of daylight overdraft when a fee is not imposed on collateralized daylight overdrafts, but a 50 basis points fee is taken on uncollateralized ones.

Occasionally, banks might not have enough money in their Federal Reserve accounts to fulfill their withdrawals. For example, Let’s assume Bank A has $10 million as their assets and the Federal Reserve requires 10% of their asset as their reserves, which is $1 million. If one day, Bank A needs to transfer out $1.5 million during the day, Bank A is running a daylight overdraft during that day. By the end of that particular day, Bank A has an obligation to payback the Federal Reserve.
-- Wikipedia
Legal Definition
An intraday LOAN created when a BANK transfers funds in excess of its balance held in a reserve account with the CENTRAL BANK. Overdrafts may also occur in the accounts of interbank payment members and in correspondent banks.