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' ' 4 8 X-7507 (INTERPRETATION OF BANKING ACT OP 1933) Copies to be sent to all Federal Reserve Banks# July 12, 1933. Mr# W. S. Johns, Acting Governor, Federal Reserve Bank of Atlanta, Atlanta, Georgia. Dear Mr. Johns: Reference is made to your letter of June 27, 1933, and your telegram of June 28, in which tho question is raised whether a member bank, in view of the provisions of section 19 of the Federal Reserve Act, as amended by section 11(b) of the Banking Act of 1933, prohibiting the payment of interest by member banks on deposits payable on demand, may absorb exchange or collection charges in connection with checks and other items received by such bank for credit to the account of a correspondent bank. The Board understands that, unless a sufficient balance is maintained by the correspondent bank to recompense the member bank for the absorption of such charges, a charge will be assessed against such correspondent bank. Presumably, however, there is no fixed ratio between the amount of such charges so absorbed by the member bank and the amount of tho balance maintained by the correspondent. Tho amount of charges absorbed is not based upon the amount of such deposit balance, but depends rather upon the number of items roceived in the correspondent's account, the time necessary to colloct then and tho manner of collection necessary. Moreover, it is understood #ien the amount of such deposit balance is above tho minimum required for the absorption of such charges, there is no corresponding increase in the cost of the account to tho member bank or in the benefits to the correspondent bank# X-7507 Mr# W. S» Johns — 2 Upon consideration of the natter, it is tho Board's opinion that the absorption of such collection or exchange charges in tho circumstances described is not to be regarded as payment of interest directly or indirectly within the meaning of section 19 of the Federal Reserve Act, as amended# Very truly yours, Chester Morrill, Secretary.
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