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t.
CARTER GLASS
FTLCFTLTAAT OF THE TREASURY
CHAIRMAN
J O H N SKELTOM WILLIAMS
COMPTROLLER OF THE CURRENCY

969

W. P . G . HARDING. GOVERNOR
ALBERT STRAUSS. VICE GOVERNOR

I X OFFICIO MEMBERS

ADOLPH C. MILLER
CHARLES S . HAMLIN

FEDERAL RESERVE BOARD

HENRY A MOEHLENPAH
W . T. CHAPMAN. SECRETARY
R. G . EMERSON. ASSISTANT SECRETARY

ADDRESS REPLY TO

FEDERAL RESERVE BOARD

WASHINGTON

w . M. IMLAY. FISCAL AGENT

X-17U8
I

Dear
Receipt i s acknowledged, of your l e t t e r of the
i n which you p r o t e s t a g a i n s t the p o l i c y which has been adopted, 'by the
Federal Reserve Banks w i t h the approval of the Federal Reserve Board
i n the m a t t e r of t h e c o l l e c t i o n of checks which a r e r e c e i v e d by Federal
Reserve Banks from t h e i r member barks or from non-member banks which
maintain c l e a r i n g or c o l l e c t i o n accounts w i t h them*
The B o a r d ' s a c t i o n i s based upon i t s conception of t h e v e r y evident
purposes off the F e d e r a l Reserve Act. Section 13 of t h e Act b e g i n s , as
f o l l o w s : "Any Federal Reserve Bank may r e c e i v e from any of i t s member
banks, and from t h e United S t a t e s , d e p o s i t s of c u r r e n t f u n d s i n l a w f u l
money, n a t i o n a l bank n o t e s , Federal Reserve n o t e s , or checks, and d r a f t s ,
payable upon p r e s e n t a t i o n , and a l s o , f o r c o l l e c t i o n , maturing n o t e s and
b i l l s . " Even t h o u ^ i the F e d e r a l Reserve Board h a s h e r e t o f o r e r u l e d t h a t
the p e r m i s s i v e "may" as used i n t h e f o r e g o i n g paragraph should n o t be
construed to mean t h e mandatory " s h a l l n n e v e r t h e l e s s i t i s c l e a r t h a t a
Federal Reserve Bank i n order to do any b u s i n e s s whatever must e x e r c i s e some
of the permissive powers a u t h o r i z e d by law. I t would be impossible o t h e r wise f o r a F e d e r a l Reserve Bank to a f f o r d to i t s member banks many of the
p r i v i l e g e s which t h e law c l e a r l y contemplates and to which t h e member batiks
a r e c l e a r l y e n t i t l e d . But independently of a d i s c u s s i o n of t h i s phase •*
the s i t u a t i o n , i t seems to the Board t h a t doubts upon t h i s q u e s t i o n a r e
r e # # l v e d upon a c o n s i d e r a t i o n of the p r o v i s i o n s of S e c t i o n 16. "Every
F e d e r a l Reserve Bank s h a l l r e c e i v e on d e p o s i t a t par from member banks or
y
from F e d e r a l Reserve Banks checks and d r a f t s drawn upon any of i t s d e p o s i t o r s .
I n t h i s c a s e , the o b l i g a t o r y " s h a l l " i s u s e d so t h a t t h e r e i s no o p t i o n i n
the Federal Reserve Bank so f a r as checks and d r a f t s upon i t s d e p o s i t o r s
a r e concerned. From t h i s i t may be argued t h a t a s the d e p o s i t o r s of a
Federal Reserve Bank a r e member banks t h e r e i s no o b l i g a t i o n upon the
F e d e r a l Reserve Bank to r e c e i v e on d e p o s i t a t p a r checks on non-member
banks, b u t even i f t h e language of Section 13 be c o n s t r u e d a s permissive
t h e r e seems t o be no q u e s t i o n t h a t t h e F e d e r a l Reserve Bank h a s the
to r e c e i v e on d e p o s i t from any of i t s member banks any c h e c k s o r d r a f t s
upon whomsoever drawn, p r o v i d e d they a r e payable upon p r e s e n t a t i o n . The
whole purpose of t h e Act demands t h a t i n j u s t i c e to member banks, they
should e x e r c i s e t h a t r i g f c t .
S e c t i o n 16 f u r t h e r p r o v i d e s t h a t t h e Federal Reserve Board "may
a t i t s d i s c r e t i o n e x e r c i s e the f u n c t i o n s of a c l e a r i n g house f o r such
F e d e r a l Reserve Banks *** and may a l s o r e q u i r e each such bank to e x e r c i s e



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X-174S

the f u n c t i o n s of a c l e a r i n g house f o r i t s member b a n k s . 0 In accordance with
the purpose of t h i s paragraph, the Federal Reserve Board, with the view u l t i mately of e s t a b l i s h i n g a u n i v e r s a l or n a t i u n a l system 01 c l e a r i n g i n t e r s e c t i o n a l
balances as well a s bank checks and d r a f t s , has e s t a b l i s h e d a gola s e t t l e m e n t
fund through which d a i l y c l e a r i n g s between a l l Federal Eeserve Barks are
consummated and h a s a l s o required, each Federal Reserve Bank to e x e r c i s e the
f u n c t i o n s of a c l e a r i n g house f o r i t s member bariks. In order, however, t o make
f u l l y e f f e c t i v e i t s f a c i l i t i e s as a c l e a r i n g house i n accordance with the terms
of t h i s s e c t i o n , there does not seem to be any doubt t h a t the Federal Ee serve
Basak should not only e x e r c i s e i t s o b l i g a t o r y power t o r e c e i v e from member barks
checks and d r a f t s drawn upon other member banks, but t h a t i t should a l s o exer*c i s e i t s permissive power to r e c e i v e from member bariks any other checks and
d r a f t s upon whomsoever drawn, provided t h a t they are payable upon p r e s e n t a t i o n .
There are no doubt many non-member bariks without s u f f i c i e n t c a p i t a l i z a t i o n
to make them e l i g i b l e f o r membership i n t h e Federal Reserve System, but p r o v i sion i s made f o r such banks i n Section 13 by a u t h o r i z i n g t h e Federal Reserve
Banks, f o r purposes of exchange or of c o l l e c t i o n , to r e c e i v e d e p o s i t s from any
non-member bank or t r u s t company. But f o r the f a c t t h a t the small country barice
are able t o have t h e i r out of town items c r e d i t e d at par by some c i t y correspondent, there i s no doubt t h a t many more of them would a v a i l themselves of the
non-fcecber c o l l e c t i o n p r i v i l e g e than have done so.
There i s a proviso i n Section 13 which allows member and non-member banks
to make r e a s o n a b l e charges "to be determined and r e g u l a t e d by t h e Federal Reserve /
Board, but i n no case to exceed 10 c e n t s per $100 or f r a c t i o n t h e r e o f , based on
the t o t a l of checks and d r a f t s presented a t any one time, f o r c o l l e c t i o n or payment of checks and d r a f t s and remission t h e r e f o r by exchange or otherwise; b u t
no such charges s h a l l be maae a g a i n s t the Federal Reserve Banks." This has been
construed by the Attorney General of the United S t a t e s a s meaning t h a t a Federal
Reserve Bank cannot l e g a l l y pay. any f e e to a member or non-member bank f o r the
c o l l e c t i o n and remittance of a check. I t f o l l o w s , t h e r e f o r e , t h a t if the Federal
Reserve Banks a r e t o give the service r e q u i r e d of them under the p r o v i s i o n s of
Section 13 they must i n cases where barks r e f u s e t o remit f o r t h e i r checks a t
par use some other means of c o l l e c t i o n no matter how expensive.
The a c t i o n of the v a r i o u s Federal Reserve Banks i n extending t h e i r par l i s t s
has met with the c o r d i a l approval of the Federal Reserve Board, which holds the
view that under the terms of e x i s t i n g law, the Federal Reserve Banks must use
every e f f o r t to c o l l e c t a l l bank checks r e c e i v e d from member b a r k s a t p a r ,
Several of the Federal Reserve Bariks a r e now able t o c o l l e c t on a l l p o i n t s i n
t h e i r r e s p e c t i v e d i s t r i c t s a t par and new a d d i t i o n s t o the o t h e r par l i s t s a r e
b e i n g made every day. The Board sees no o b j e c t i o n to one bank charging another
bank o*. a f i r m or i n d i v i d u a l the f u l l amount provided i n Section 13 of the Fed*
e r a l Reserve Act ( l o c e n t s per $100) and has n o t undertaken to modify these
charges, but the Act e x p r e s s l y provides t h a t no such charge s h a l l be made a g a i n s t
the Federal Reserve Bariks.




X-17U8

I t i s the Board's duty to see t h a t the law i s administered f a i r l y
and without d i s c r i m i n a t i o n and t h a t i t a p p l i e s to a l l banks a l i k e , and i t
i s making an earnest endeavor to carry out the laws as construed by the
highest l e g a l a u t h o r i t y of the a d m i n i s t r a t i v e branch of the Government.