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(COPY ) X-U031 Federal Reserve Bank of Richmond April 17, 1924. Mr. Walter Wyatt, General Counsel, Federal Reserve Board, Washington, D. C. Dear Mr. Wyatt: Mr. Wallace has shown me your telegram of yesterday to him s t a t i n g that the Board has determined to defer f i n a l action with respect to Regulation J until after the coming Conference of Governors, and that the regulation may be made a. topic of discussion at that Conference. Mr. Wallace discussed with the o f f i c e r s of the Bank your l e t t e r of the ljjth to him accompanying which was the l a s t draft of Regulation J. Inasmuch as the Board i e aware that Mr- Wallace has collaborated with you in the verbal preparation of certain provisions of the regulation, which necessarily involved d i s c u s s i o n with our o f f i c e r s , I do not think i t inappropriate for me, as a. r e s u l t of the discussion of your l e t t e r with Mr. Wallace on y e s t e r day , to transmit to you certain suggestions, r e l a t i n g s p e c i f i c a l l y to Section V, paragraph ( 4 ) . Mr. Wallace participated , a t your request, i n a conference between you and Counsel of the Dallas bank, and we are, of course, aware of the con clusions arrived at and the reasons therefor. We have given very c a r e f u l consideration to the changes incorporated by you in the draft of the regulation as a r e s u l t of that conference, and we have arrived at the d e c i s i o n that- i t i s highly, advisable to change somewhat the form of paragraph ( 4 ) . I t is my understanding, of course, that, at the present stage, there i s e n t i r e freedom of suggestion on your part and on the part of Mr. Wallace and on our part, the vtiiole matter being in course of preparation for submission t o the Board I regard paragraph (4) as being one of the most important i n the regulation, and we have come to the conclusion that i f we can make i t follow as nearly as p o s s i b l e the language of the former Regulation J, i t w i l l be advisable from many points of view. We have, therefore, examined the former regulation, and are sending you herewith draft of that paragraph as we now b e l i e v e would meet the requirements better than anything heretofore considered. If i t does not meet the contention of the Counsel for the Dallas bank, i t i s t o be regretted; but in our opinion, the peculiar s i t u a t i o n of the Dallas bank should not necess a r i l y determine the language of the paragraph, which would be applicable to a l l Federal Reserve Banks a l i k e . In the draft of paragraph as we submit i t , you w i l l notice a very close analogy between the two methods of c o l l e c t i o n , one by remittance and the other by charge to the drawee bank on the books of the Reserve Bank. In the one case, d r a f t s on the reserve or clearing accounts or remittances i n other immediately available funds are required; i n the other case, the charge i s made against the reserve accounts of the member banks and the clearing accounts. When the charge is made, i t i s at the expiration of the agreed transit time; r* < > X-U031 -2- we are therefore of the opinion that there should "be a p r o v i s i o n t h a t i f r e mittance i s not received at the expiration of the agreed t r a n s i t time, t h e r e should he.vested in the Reserve Bank the authority to charge the accounts of the delinquent hanks. This authority may be by implication, vested i n us by other terms of the r e g u l a t i o n , but i n our judgment i t i s very much b e t t e r to have i t s p e c i f i c a l l y s t a t e d . This i s the provision which may come in c o n f l i c t with the argument of the Dallas bank- Nevertheless, we are of the opinion s t a t e d . While I have stated that the new regulation should f o l l o w the language of the old r e g u l a t i o n , there i s one respect i n which we think the time opportune for change, and we think i t i s of importance to make the change* The old regul a t i o n provides that when t h e remittance method of c o l l e c t i o n i s i n f o r c e , rather than the charge method, remittance shall be made i n funds acceptable, to the Federal Reserve Bank; there can be only one c l a s s of furd s e n t i r e l y acceptable to Federal Reserve Banks in dealing with members i n t h i s connection, that i s immediately a v a i l a b l e funds, and i t should be so expressed, i n our judgement. In dealing with nonmember banks, the term "acceptable funds" i s used, which does not in p r a c t i c e , a t l e a s t , always mean immediately a v a i l a b l e funds; but there i s the strongest kind, of reason in g i v i n g a Reserve Bark d i s c r e t i o n as to the d e f i n i t i o n of "acceptable funds11 i n t h i s connection i n dealing with nonmembers, because in c e r t a i n parts of the country ( t h i s being one of them) immediately available funds cannot be furnished, by a very large number of banks* In l e a v i n g the phraseology "acceptable funds" i n the d r a f t of the regulation applicable t o member banks, there has been — and there w i l l continue t o be - - great danger of t h e i r r a i s i n g the contention that acceptable funds^ should mean i n t h e i r case what i t means i n the case of nonmember banks. This cannot be; there i s a wide d i s t i n c t i o n , and we b e l i e v e now i s the time to eliminate those words from the regulation, and that i t i s of extreme importance that they be eliminated. Inasmuch as you are preparing a form for submission, as we understand i t , I would suggest your adoption of paragraph (4) as we submit i t to you herewith, or a t l e a s t that you g i v e i t a s an a l t e r n a t i v e paragraph, so that when the matter i s presented i t s h a l l be iA t h e most desirable form or, i f there are two opinions, in a l t e r n a t i v e form. I recognize that c o n f l i c t i n g opinions render your p o s i t i o n i n t h i s matter a trying one. Permit me to suggest, a l s o , that should the Board decide to submit the r e g u l a t i o n to the Conference of Governors, a copy of the proposed form 0 regulation be transmitted to each governor in advance, t o p e r m i t him t o d i s cuss the matter with the operating department of h i s bank; t h i s i s a matter which the governors themselves would ordinarily r e f e r t o tke Standing Committeeon Collections f o r report and r econanepdation: , but inasmuch as i t i s d e s i r a b l e to i s s u e Regulation J with as l i t t l e delay as p o s s i b l e , i t would be a d v i s a b l e , i n our opinion, t o f u r n i s h the Reserve Banks with a copy of the regulation as proposed so that d i s c u s s i o n may be had. i n advance of the Conference and d e c i s i o n reached, in the Conference. Very truly yours, (signed) Geo« J- Seay, GJS-CCP End s GED» J . SEAY, Governor* x-4031 SECTION 7 (4) - REGULATION J. Checks received by 9 Federal Reserve Bank on i t s member or nonmember clearing banks w i l l ordinarily be forwarded or presented direct to such banks, and such banks w i l l be required to pay or remit therefor at par i n cash or in d r a f t s on their reserve or clearing accounts or in other immediately available funds, or to authorize the Federal Reserve Bank to charge their reserve accounts or clearing accounts; provided , however, that i n c a s e such remittance or authorization is not received by the Federal Reserve Bank from any such bank at the expiration of the agreed transit time between the Federal Reserve Bank and such bank, the Federal Reserve Bank s h a l l have the right to charge such items to the reserve account or clearing account of such bank at the expiration of such time*
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