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X-5053
['
B \.KEL, HOSS:ETLER & SIDLO
Counsellors gt ~~w
Union Trust ]-J.il:linG
Cleveland
.i.u<;ust 24, 1927
Mr. W::tltcr Wy:itt
Federal R3serve Bo~rd
Treasury Buildin,:;
Washin~ton, D. C.
Dear Mr. Wyatt:UnJ.er J.ate of .\.u_,;ust 22 Mr. Vest forwarC::.ed to rile a copy of
Mr. Parker's letter to you of A.u_;ust 19. I have just reread the lotter
of Mr. Newton of the Fe.~eral Rescrvo Bank of \.th.nta to Governor Crissin~er of .m;ust 3 and also the letter from Mr. Bell to Mr. Nawton of
A.u,'<;ust 2. :i. comparison of th:ose would seem to indicate that while the
Samson tanks have discontinued the ori .sinal enilorsement 11 Not payable
throu~h Federal Reserve Bank of .\.tlanta 11 , the sarne 1anks have now bo.-;-un
to issue checks m::trked 11 Pay::~.ble in Now Y.)rk exch::w-;e at current ratos 11 ,
and that when checks b•::aring tnis latter cnJorsoment ':l.re presented, they
decline to p9.y at p':l.r. The Fed.er3.l R.:-~serve Bank of \.tlanta has a;!opted
the pr3.ctice of returnin.~ these checks to their endorsers without .r,re·sentation.
It seems to me th3.t Mr. Parker rrrust be ri~ht in the vi GW th·J.t
check raa.:,e payable only in excl1an,:;e is n)t a check 'lt all, and I should
imagine th·:~.t the inconvenience to b'l.nk customers of paper of t.1is sort
would be such as to prevent any rapid .:;rowth in its use, but history is
too full of instances in which people hwe 'Jcen persuaded. to fi,;ht with
enthusiasm for their own enslavement to ~ve me any confidant feeling
th'l.t the people in \labama will not be willing to punish themselves, ~nd
pg,rticul~rly their creditors, in order to help these Alabama b':l.nks in
their effort to collect toll from business, so t11at we may have to face
a growth in this pr3.ctice. For the time 'Leing and until there is sor.1e
evidence of a. tendency in this pr3.ctice to spr.3ad, I think the course
now followed by the Federal Reserve Bank of !\.tlanta., as stated ty Mr.
P9.rker, is the wise one.· If the practice should .~row, I confess I have
not thou:;£ht out any way of combating it but I ar:1 kcepin:s the m:t.ttcr in
my minJ. and would be ,~lad to be kept advised of the si tm.tion in the
:1.tlanh. district i f any ch3.n.;o occurs by way of other '..Janks adopting
this pr3.ctice,
Cordially yours,
,3.
(si.:;ned) Newton D. Baker
Newton D, Baker.
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X-5053-a
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FEDEF:.olL RESEF VE BA.l-JK
OF .TLAlJTA
,\.U.}lSt
SUBJECT:·
23, 1927,
Mernter Banks St3.!npin:; on Cashier's Checks "Not paya:;le
thr.)U::,h Federal R•?serve Bank of Atlanta".
Mr. Walt•r Wy~tt, Gen3ral Counsel,
Federal Reserve Board,
Washin.:,ton, D. C.
Dear Walter:
Mr. Bell, Cashier of the Reserve Bank, h9.s r'?td the letter
which I wrote you l'lst week with reference to the practice of sevoral
!-i.la'ba.ma '.Janks tf placing on cerh.in of their cashier's and. custonor's
checks a restriction a~9.inst payr.1ent in a.ny r!ledium other than New York
exchan,;e.
Mr. Bell thinks that perhaps wy letter was misleading in
that you mic-;ht imply therefrom that practically all of the checks which
arc drawn upon the Farmers & Merchants Bank of Sarnson contain this restriction. Mr. Bell calls my attention to the fact that a. ;r:;at r.1any
of the checks on this '.Jank are drawn without any restriction, and tlnt
the Reserve Bank handles such unrestricted checks,
I have thou;ht it '.:iestto supplement my recent letter, in
order that you may not rest under any misapprehension.
Very truly yours,
(si6ned) Rbt. S. Parker
Ro'.Jt. S. Parker.
F 1:DEL1.1 h ~ SEJ<, VE .B INK
O:E'
-~'.l'kufl' ,~.
;.u;ust l 9, 1927.
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SUJ3JECT:-Member Banks Stampin~ on C3.shier 1 s ChGcks ":Not payable
throu;h Federal R·Jscrve B9.nk of ltla.ntJ.. 11
Mr. Walter WY3tt, Gcn~ral Counsel,
Federal Rescrv0 BoJ.rd,
W~shin;ton, D. C.
Dear Walt ")r:
You m3.y recall that (:m M'i.Y 25th of this ye.:u I wrote you in
th:o atove m9.tter, ~ivin,~ you the n:J.r:lOs of nine H1.1)1.ma banks which ha.~~
placed. on their cashier s :1nJ. customer 1 s chocks a le:_;enJ. re11d.in.~ in offeet 11 p!-:i.yable in N·3W York 'Exch:3.n:;e :>.t current rates." In that letter
I stated furthor that '111 of tho banks r:1entioneJ, except the First Na.tbm.l
B1.nk of S1.mson, 1.ncl Slocomb N1.ti:mal Bank, Slocor:ill, ha.d been payin:, such
checks whcm pr,s•.mted ;)y the R-~s·Jrve B'lnk. I 1.lso st1.ted. th1.t the S:3.id
First N-~tion:1l B'l.nk of S1.mson 'lnd tho s:1ill Slocorab Nation::l.l B·:1nk h:li 1.lvised th~t they would not ·;,a.y checks bearin_; this not'ltion, -'lt p:1r.
It h1.s this r:1ornin.; b(len brou._sht to my a.ttnnti-Jn thJ.t the
F:umers & Merch1.11ts B:3.nk of Samson, :3. State nem0er, lus, for the past
few weeks, refused. to pay 9.t par all chocks '.ic9.rin~-; this restrictive n:)t'l.tion. Therefore, the Reserve Bank has been rcturnin::; to its cn.iorsors
checks drawn on the s::1id F..1.rners & Morch3.nts Bank md. restricto;l t:.; p3.yr"1cmt
in New York exch9.n~e.
SJr.1c of the checks d.rawn on S:J.id. F3.rwers & Merch·J.nts B..1.nk 9.11i
returned unp-=dd to the R-Jserve Bank, showed 1t the tLae of return the
a.J.di tion of another n.)t.ation, viz: a. ~neraoranJum ~7ri tten in pen :1nd ink
on the checks 9.nJ re~dinr subst9.nti~lly :1B follows:
Dr:1wn with restrictions. Return throu.:;h ch:mnels
other th3.n FeJ.era.l Reserve B1Ilk ~nd. s:u.1e will 'uo pA.id immedi ·:~.tely 11
11
•
Mr. Creed. Taylor, Deputy O.overn·Jr, h:.1s to~a.y su0witteil t0 rJe
the qu8stion of wheth'3r or not the Jnr~norand.l..lr.l or notation to th'" effect
th9.t the check would be p9.id. if presented to the dr:1wee ~.:mk by an a :ency.
other th '111 the F0-:.er~l Reserve B·:tnk, should properly occ~sion "l.llY sp Jci3.l
h'J.nd.lin:; with the F9.rr..1era & Merchants B'lnk, sir.1ib.r tv th"l.t which w:ts
outlined 3.t Clevel"l.n:i when we h:aJ. un-:!.er 'l.dvisement restrictions on chocks
a=:·'linst p'lyrnent throu.~h Federal R"serve B'l.nks.
I h3.ve told him th'3.t, in my opini-.)n, there is quite :1 _ifferencc
between th~ 1)h,cin; on 3. check of 'l. not9.tion to the effect th·.1t the s::u.10 is
not p3.yable throu::;h '3. Fc'lder.a.l f.:~serve Bank 'Ul.i ~ r:1ere entry on a check, n.t
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X-5053.,.b
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the tii:1e p3.yrn3nt is refuse.:, t:;, th3 :'lffect th::~.t ,:.-~yucmt w.Jul.- ".;e inme:.U3.tely u<t'c u:)on 9.noth:3r prcsont1tion throu,:h ·:~. -::ifferent 'l.:;ency.
I tolrl Mr. T'l.ylor, however, th:1.t I would sutui t the r.l'i.t ter to
you. \ve h3.ve no infJrr;Fttion ':l.t present th3.t 1.ny 1)•inks, other than tho
several .UalJ'tr.m institutions, the names of which h1.ve ~)eon furnis~l' d you,
:tre 9.doptin; this pr'lcticc, tut th3re is ·1 ch:mcP., of course, that others
ma.y d.o so.
It seems to me th1.t there is in fact a wide difference between
check which 1 iui t s th-3 ue\li UL1 of its p3.yr.1en t to oxchan;e '3.n:l a check
which is restricted :~.;::l.inc::t present'ltion throu~h ·'l FedcrJ.l Res8rve B':l.nk.
: . check which is ex;;>ressly r,l'liO pay.1.ble only in cxchg,n;e is not .'l ne .~o
ti'3.ble instrument, in r:J.Y opinion, Ed there is 'i. s-?und. re'l.son why the
pr'3.ctice of issuin:; such checks should not ;·:lin ::my V3ry considern.bl(' h•39.d.W3.y. It is true, furthennoro, th'l.t under th; letter of the ~lab~Ja st'3.tute,
with which you are f9.!1lili3.r 1 a b3.nk in thJ.t Sh.te is purport in.; to CX·Jrci se 3. ri ~ht ;i ven to it by st'3.tute when it '3Xpressly stipub.tes tmt it
will p1.y checks dr<twn on it only in ox chan ;e. 1ie h':lve 3.11 d.ociJ.ed th:J.t 3.
st~pulation 'ls'3.inst present:l.tion throu_~h a Feder'3.l Reserve Bank is vioh.ti ve of the letter ·1n;:.!. syiri t of the Federg,l RCJservG ..let 1 but it J. ..)o;:s
not seem to rae th'lt this coul.l be said with re.~ard to checks which 'lro
dr:3.wn payablein exch1.n_;e, wh:ltcver else mi,~ht be s3.Ll in critici:;;r.1 of such
checks.
9.
I am of the opinbn, furthcrr:1:>re 1 th:3.t the b:mk upon which g,
check, payable only in Gxchan;e is J.r1.wn 1 woul.i h:we the ri;ht, ·:J.t the time
of refusin~ t:> pay 3.t 21.r to the Fed.cr:tl Reserve Bank, to advise the hoLier
of the check, by not:3.tion entered .thereon, tru1.t payrurmt would be 1aa.:.:.c Ui.)On
presents.tion throu~h any 3.';ent who c::>uld le;ally collect in New York exchan:;e at current r:1tes.
Of course the wides)rG:3.d use of chAcks drawn p!lyablo in exwould be equ9.lly as dar,l:a.;in.~ to the Reserve Banks' par collection
system .:l.S would the use of checks restt~cted 'l.·_;ainst presentation thr:m:;;h
Federal Reserve B'3.nks. Therefore, I haye thou.;ht it best to present the
situ3.tion to you since at Cleveland we Gave comparatively little att~ntion
to this ph<tse of the ~en.::Jr'l.l si tU!I.tion.
cl~an.~e,
J.s a. m3.tter of fact, the practice of drawin;; non-no,~otiatle
checks, p~yablo only in ·3Xchan.:;o, woulC'.. S0'3ffi to be so obviously unsound
s.s <t business proposition g,s to J.iscour'3.;e 1 if not pr:~.ctic'3.lly prevent, .my
very ,~en9r'3.l 3.ccepts.ti::m or ad.olJtion.
Only thre:1
so restricted.
b~nks
in this District <trc refusins t.) p::1y checks
I am advised by the R';')S.;}rve Bank th:1t it is returnin.s 9.11 such
'1
i
X-5053-lJ
-3-
chocks dr::1.wn on S'lLl three b.:1nks without pr:;)scmtati:m, ·1.n.~ this would.
appe'lr to bo th•? l6.~ical thin.j t) d.o, sincG it is a cnrtainty th1.t p'1ymcnt would be ;refused UJ?On pr )S·:mb.tion by th.; Ros.;rvo B mk, '1UlL to J.o
so woulJ. only result in tlol1.y which rai .:;ht occ:1sion loss.
If, however, you f:;el tha.t
visatle, plr?'J.SG <1dvise r.1e,
1.
::ifferent h1ndlin:; wouk be
'1.>
Thinkin.; th·~t you t.ny wish Mr. B'lkGr to take this 1:1-:l.ttor un,~or
1.J.visement, I 'l.U, f:>r your c·onvenienca 1 wri tin.; this lctt-3r in ::ui!lic1.te.
Y!i th '.Jest p•.3rson3.l re ;1.rJ.s, I ara
1
Cor•:ii'.l.lly yours 1
(si :ned) Rtt. S. Parker
}.o'Jt. S. P3.rkor
@FedFRASER