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X-6751 BXCEBFT FROM. THE BEPOBT OF THE STAEDING- COMMITTEE ON COLLECTIONS 8 7 2 TO THE C01TFEBE1-IC5 OF GOVEB1TORS, SPBIMO, 1930. Acceptance by Federal Reserve Banks of Cash L e t t e r s from Hon-Member Banks for the Credit of Member Banks The Committee has been advised by one of the Federal reserve banks t h a t s e v e r a l of i t s l a r g e member banks l o c a t e d outside of the Federal r e s e r v e c i t y have submitted on a number of occasions a p l a n under which t h e i r country non-member bank correspondents would prepare d a i l y cash l e t t e r s on the l e t t e r - h e a d s of the member banks, which l e t t e r s would be dispatched d i r e c t by the non—member banks to the Federal reserve bank f o r the c r e d i t of i t s member banks. The checks would be endorsed by each non-member bank with a double endorsement stamp b e a r i n g the name of both the member bank and the non-member bank. Under the plan the member bank would r e c e i v e c r e d i t a t the Federal re* serve bank without having to handle the checks. Since a matter of p o l i c y , which should be uniform i n a l l Federal reserve d i s t r i c t s , i s involved i n the question as to whether or not such p r a c t i c e should be p e r m i t t e d , the s u b j e c t was r e f e r r e d to the Standing Committee on Collections f o r c o n s i d e r a t i o n and r e p o r t to the next Conference of Governors. In r e p o r t i n g to the Governors 1 Conference of April 1, 1929, on the s u b j e c t of t r a n s f e r s requested by non^member banks, the Committee exp r e s s e d the opinion t h a t under a s t r i c t i n t e r p r e t a t i o n of Section 13 of the f e d e r a l Reserve Act, Federal r e s e r v e banks cannot r e c e i v e d e p o s i t s of any d e s c r i p t i o n from non—member banks even i f such d e p o s i t s are f o r the c r e d i t of member banks. I t was f e l t , however, t h a t the acceptance from non-member banks of c e r t a i n remittances f o r the c r e d i t of member banks was d e s i r a b l e - 2 ~ X-6751 and might "be defended on the ground t h a t the non-member "banks i n making the d e p o s i t s wore a c t i n g as agents of the member banks r e c e i v i n g c r e d i t f o r the deposits* In i t s r e p o r t the Committee recommended t h a t Federal r e s e r v e "banks should accept from non-member banks for the c r e d i t of member banks only one form of r e m i t t a n c e , namely, a non-member bank's own d r a f t on a c l e a r i n g house bank i n the c i t y of the Federal r e s e r v e bank or one of i t s branches, and then only i n case the member bank r e c e i v i n g c r e d i t has authorized the Federal r e serve bank to accept the deposit s u b j e c t to the same terms and conditions t h a t Y7ould p r e v a i l i f the deposit had been made by the member bank i t s e l f • The Governors approved t h i s recommendation and the Federal Reserve Board i n i t s l e t t e r of November 4, 1929 (X-6407) made the a c t i o n mandatory upon a l l Federal r e s e r v e banks. In the opinion of the Committee t h i s a c t i o n precludes the sending by non-member banks t o Federal reserve banks f o r the c r e d i t of member banks of any items except t h e i r own d r a f t s drawn on s p e c i f i c points# Even i f t h i s were not the case, i n the opinion of the Committee Federal r e s e r v e banks should under no conditions accept miscellaneous checks from non-member banks. Such a procedure would as a p r a c t i c a l matter throw open the c o l l e c t i o n f a c i l i t i e s of the Federal Reserve System to non-member banks without r e q u i r i n g them to become members or to c o n t r i b u t e i n any way to i t s maintenance. Such banks would receive c r e d i t on the member banks 1 accounts j u s t as soon as they would i f they themselves maintained accounts. Questions involving l i a b i l i t y , endorse- ments, e t c . , as well as the mechanics of procedure would be p r e s e n t e d , and i t i s the b e l i e f of the Committee t h a t the operation would r e s u l t i n g r e a t l y i n creased expense to the Federal Reserve System. The Committee i s s t r o n g l y of the opinion t h a t such procedure should not be p e r m i t t e d under any circumstances#
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