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Check Clea.ring and Collection Plan
Submitted to the Federal Reserve Boa.rd
by Cha.rles DeB. Claiborne, representing the Committee of Five on Exchange
of the American Bankers Associa.tion.
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CHECK CLEARING AND COLLECTION
Section I.
Section
Statutory Provisions.
16 of the Federal Reserve Act authorizes the Federa.l Reserve
Board to require ea.ch Federa.l Reserve Ba.nk to exercise the functions of a.
clearing house for its merriber banks, and section 13 of the Federal Reserve Act, a.s amended by the a.ct approved June
a 1917,
1
a.uthorizes ea.ch
Federal Reserve Bank to receive from any non-member bank or trust company,
solely for the purposes of exchange or of collection, deposits of current
funds in lawful money, national-bank notes, Federal Reserve notes, checks
and drafts pa~a.ble upon presenta.tion, or rraturmg notes a.nd bills, provided such non-member bank or trust company rra.inta.ins with its Federal
Reserve Bailk a. balance sufficient to offset the i terns in transit held for
its account by the Federal Reserve Bank.
Section II.
General
~guirements.
In.pursuance of the authority vested in it under these provisions of
la.w, the Federal Reserve Boa.rd, desiring to afford both to the public and
to the va.rious banks of the country a. direct, expeditious, and economical
system of check collection and settlement of .balances, ha.s a.rranged to
have aach Federal Reserve Bank exercise the flll1ctions of a. clea.ring house
for such of its member banks a.s desire to avail themselves of its
privileges and for such non-member Sta.te banks and trust compa.nies a.s ma:y
ma.inta.in with theFederal Reserve Bank ba.la.nces sufficient to qualify them
l.ll1der the provisions of section 13 to send i terns to Federal Reserve Ba,nks
for purposes of exchange or of collection.
Such non-member Sta.te banks a.nd
I
,
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trW::t compar..ies will hereinafter be referred to as non-member clearing ba,nks.
Each Federal Heserve Bank shall exercise tl1e functions of a. clea.ring
house unQ.er the general terms and conditions hercino.ftcr set forth.
Section III.
;Eli,&~1l~£i
He serve
of Checks J.g
b~ l!o..nd.~ed
_Ex Federal
BA.i:l'~<S.
(a.) Each 'Federal Reserve Bank will receive from its member ba.nks and
from non-member clearing b:uit:s in its district on deposit at pa.r for immediate credit and a.va.ilsbility
~hecks
payable within its district dravm
on all member and non-mer:1bsr clea.ring banks and on a.ll other b.3nkS within
its district that agree to remit a.t per in a.ccepta.ble funds to the Iederal
Reserve Bank.
(b) For all such checks so deposi t3?-, the depositing bank sha.ll be
given immediate credit and a.vaila'oility by the Federal Reserve Bank.
(c) No Federal heserve Ba.nk shall receive on deposit for immediate
credit a.nd a.vaila.bility any check drawn on any bank not within its district,
on
nor/any bank within or without its dh~trict ths.t refuses to remit a.t pa.r
in acceptable funds: Provided, however, tha.t all Federal Rasarve Banks
will receive from their members and clea.ring merr;bers wi trin their respective districts as forwa.rding a.gents onl:· and for deferred credit only
checks on rrember banks of other Federal Reserve Banks, and checks on nonm~mber
banks within or without their districts to be forwarded direct to
the banks on which drawn if within their district, or through the Federa.l
Reserve Bank of the @istrict in which the drawee ba.nk is located, for remittance by said drawee banl:, and any such drawee bank may deduct from
the fa.ce value of the checks so forwarded to it :for remittance an excha.nge
cha.rge against the bank for which said checks are being handled of not
exceeding ten cents (106). per One Hundred Dolla.rs ($100.00) of the face
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amount of such check or checks, and in no ca.se less than tan cents for any
one rerni ttance, and tne net proceeds of such check or checks sha.ll be
covered by exchange drafts a·,ra.ila.ble at par, dra:vm to the order of the
Federal Reserve Bank from which such checks were received by the dra.wee bs.nk.
Vihen the net proceeds of any such check or checl::s a.re a.v.:1ilable to any
Federal Resene Bank, either direct or through the gold settlement fund, or
under its established averagt3 t.i.rne schedule 1 tha sa.rr.e sha.ll be credited by
it to the reserve or depos::.t 4ccount of the bank from which su:;h checks
were originally received.
(d) Rvery Federa.l Reserve Bank will receive from other Federal Reserve
Banks checks drawn upon a.ll bonks of its
distri~t
a.s forwarding a.gent
only, and as such agent receive -che proceeds of all such checks direct
from the drawee ba.rik, less such cha.rges a.ga.inst the bank for which said
checks a.re being handled for pa.yrnent and remi tt<Jnca as rr._'iy be made by:·
the drawee bank, but in no case to exceed ten cents (106) per One Hundred
Dollars ($100 .oo) of the fo.ce a.mount of such check or checks, and a minimum
charge of ten cents (10~).
(e) No such cha.rge for payment a.nd ren~ittance sha.:::.l be r.iade by any
rr.ember or clea.ring member bank against the Federal Eeserve $nk upon any
check drawn payable to such Federa.l Reserve Bank Without prior endorsement·
(f) No exchange cha.rge shall be made by any bank upon any check '·Vhich
is the property of the United States.
Section
IV. Manner of Collection.
The Federal Reserve Boord hera by authorizes, and ea.ch xr.ember and nonmember clearing bank will be required to authorize the Federal l~eserve Banks
to handle checks received on deposit, or a.s forwarding agent, as follows:
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(l) A Federa~ Reserve Bank will a.ct a.s agent only, and will assume no
liability except for its ovm negligence and its gua.ranty of prior endorserrents.
(2) A :li'-)dero.l Res<Jrta B::1.nk: is authorized to send checks for pa.yment in
exchange draft direct to the bank on which they are dra.vm, o:r to which they
are payable.
(3) Checks recaivad on deposit for imrr.edia.te cred:.t and availability,
as provided in paragraph (o.) of Section III of these regulations, by a
Federal 1:eserve Ba.nk on it:.> m;;;rrber or non-me,nber clear:i.r.g tanl>.:s will be
for11.rarded direct to st:ch banks, and euch banks w::ll be requi:::-ed to remit
I
therefor at par in funds accer'table to the Fed.ero.l ileserve Bank, or to
authorize the said R.;serve Bank to charge their respective account or
clearing accounts.
(4) Checks received. by
;;1.
:Fe:ier:Jl :Reserve Ba.nk as forJerdine; agent
payable in other districts will be for,va.rdad to the Factera.l Heserve Bank
of the district in which such items a.re paz·aoJ.e , in
acGordan.~e
with para-
graph (c) of Section III of these re61llations.
(5) A Federal Reserve Bank will cnarge ba.ck tne amc,unt of ru-zy check
for which payment has not actually been re0eived, r0garClL:ss of vvhether
or not the cheCk itself can be returned.
Section
v,
Penalties for Deficiencies in Reserves.
(a) Statutory provisions:-- Section 19 of the Federal Reserve i•ct
provides tha.t -The required balance carried by a member bank d th a Federal
Reserve Bank may, under the regtllo.tions and subj3ct to such
penal ties a.s may be prescribed by the Fede1·al Reserve Board,
be cheeked. a.ga inst and ·-v:i. their awn by such member bank for the
purpose of meeting ez:isting liabilities; Provided 1 hcwever,
That no bank shall a.t any t irLe ma~r..e nf, IV loar:.s or sheJ.l :pay·
any dividends unless and until tile totaJ. b:J.lance reqcd:ced by
la.w is fully restored.
~
...
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(b) Basic Penalty:-- Inasmuch a.s i t is essantial that the la.w in
respect to the uBinter$nce by rramber banks of the raQuired minimum reserve
ba.lance shall be strictly complied
wit~.
the Federal Reserve Board, under
authority ve.sted in it by section 19 of the Federal ll.eserve .Act, hereby
prescribes a. basic penalty for deficiencies in reserves according to the
foJ.lowing rules:
1.
Deficiencies in IeGerre balances of member bznl\:s in central re-
· serveJ and reserve cities vvill be computed on the basis of avel'a.ge daily
net deposit balances covering a. weekly period of s evet;jr days.
Deficiencies
in reserve balances of other member banks will be computed on the basis
of average daily net deposit balances covering a semi-monthly period.
2.
Penalties for deficiencies in reserves will be assessed monthly
on the basis of average daily deficiencies during each of the reserve
computation periods ending :in the preceding n:onth.
3·
A basic rate of 2 per cent per annum above the Federal Reserve
:Bank discount rate on 90-day corr.mercial pa.per will be assessed as a penalty
on deficiencies in reserves of rr~rnber bar~s.
(c) Progressive Penalty:-- The Federal 1\eseT.'ve :Board
wn:.
a.!. so pre-
scribe for a.ny Federal Reserve District, u:pon the a.pplicaticn of the
Federal Reserve Bank of that district, an additional progressive r·ena.lty
for continued deficiencies in reserves. in accordance with the following
rules:
1.
When a rr~mber baruc in a central reserve or reserve city has had
an average deficiency in reserves for six consecutive weekly periods, a
progressive penalty, increa.sing at the rate of one-fourth of l per cent
for each week thereafter during W:lich the a.vera.ge reserve balance is deficient, will be assessed on weekly deficiencies until the required reserva
.
. ._)
.
'
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has been restored a.nd ma.inta.ined for four consecutive weekly periods, provided tha.t the rr.aximwn
2.
:pe~l
ty cha.rged will not exceed 10 per cent.
Wnen a member bank outside of a central reserve or reserve city
ha.s had an avera.ge deficienr.y in reserves for tl1ree
consec~::.tive
semi-
n:onthly periods, a progressive penalty, increasing a.t the rate of one-half
of 1 per cent for ea.ch half n:onth therea.fter during whirh the a.vera.ge
reserve balance is
d·.~fi;;J.e~1t,
will be a.ssessed on
sen::i.-n~onthly
de-
ficiencies until the required reserve ha.s been rest•.n·eri. ano. mainta.i.ned
for two conseCJ.l tive semi-monthly periods, provj ded tha.t the ma.ximum
penalty charged will not exceed 10 per cent.
Section VI.
Other Rules and Rer:t:kla.tions.
Any further requirements tha.t the J3oal·d rre.y deem necessary will be
set forth by the Federa.l Rese:rve Ba..."lks in their letters of ins true tion
to their member and non-member clearing banks.
Each Federa.l Reserve :Ba.nk
will a.lso promulga.te rules a.nd ree,ul8.tions governine; the details of its
operations a.s a. clea.rine; house not inconsistent herev:ith, such rules and
regula.tions to be bindine; upon a.ll member ond non-member bEJ.nks •1\hich a.re
clearing through the Federal Reserve :Bank.
"'
@FedFRASER