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440 federal reserve board WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO T H E FEDERAL RESERVE BOARD SUBJECT: X-6337 June 25, 1929. C l a s s i f i c a t i o n of C e r t a i n Items i n Computing Reserves of .Member Ifanks. Dear S i r : The Federal Reserve Board has t e e n r e q u e s t e d "by the Federal Reserve Bank of San Francisco to pa ss upon the quest i o n whether cash items f o r which c r e d i t has "been given "by a member "bank to i t s d e p o s i t o r and which have been forwarded to Out-of-town "banks f o r c o l l e c t i o n , "but which have not been charged to t h e account of such out-of-town correspondent banks, may bo c l a s s i f i e d i n computing r e s e r v e s a s amounts due from batiks and a c c o r d i n g l y deducted from amounts due to banks* A t t e n t i o n has been c a l l e d t o the f a c t t h a t the f e d e r a l Reserve Board 1 s Regulation D p e r m i t s the c l a s s i f i c a t i o n a s amounts dtie from barks df itetiis p l a c e d ill the mail and charged to the account of c o r r e s pondent banks, whdreas the i n s t r u c t i o n s accompanying the Board's form of conditio!! r e p o r t of S t a t e member banks. Form 105(a), p r o Vide t h a t amotints " due from banks and t r u s t companies" should include " u n c o l l e c t e d items payable on p r e s e n t a t i o n which have boon forwarded to banks f o r c f o d l t or c o l l c c t i b n and remittance" and no requirement i s made t h a t the items be charged t o the a c count of correspondent banks. The question p r e s e n t e d , t h e r e f o r e , i s whether i n order to be c l a s s i f i e d a s amounts due from banks i t i s s u f f i c i e n t t h a t such items be merely p l a c e d i n the mail or whether they must a l s o be charged to the account of correspondent banks. Under the t e c h n i c a l requirements of Regulation D as w r i t t e n , items which have not been charged to the account of correspondent banks may not be c l a s s i f i e d a s due from bank b a l a n c e s . There seems to be no p r a c t i c a l reason, however, f o r the requirement i n the Regulation t h a t items be charged to the account of c o r r e s pondent bank*. The Regulation p r o v i d e s t h a t items with a Federal r e s e r v e bank i n p r o c e s s of c o l l e c t i o n may be c l a s s i f i e d a s amounts due from banks and t h e r e i s no requirement t h a t such items be charged to the account of any o t h e r bank. (Thoy could not p r o p e r l y be char god to the account of f e d e r a l r e s e r v e banks because of the d e f e r r e d c r e d i t arrangement and a l s o because c r e d i t s due from Fede r a l r e s e r v e banks a r e not t o be included a s amounts due from o t h e r X-6337 441 -2- banks i n computing r e s e r v e s . ) I t seems n e v e r t h e l e s s somewhat i n c o n s i s t e n t to r e q u i r e t h a t items be charged to the account of correspondent hanks where sent d i r e c t to them, whereas no such charge i s r e q u i r e d when the items a r e routed through a Federal r e s e r v e "bank. There a r e two courses open to the Federal Reserve Board: I t may s t a n d upon the t e c h n i c a l requirement of t h e Regulation and h o l d t h a t these items which have been forwarded to o u t - o f - t o w n banks f o r c o l l e c t i o n but which have not been charged to t h e i r account* may not be c l a s s i f i e d a s amounts due from banks; or, governed by the p r a c t i c a l s i t u a t i o n , i t may i n e f f e c t waive t h i s requirement of Regulation D a s to these items and permit t h e i r c l a s s i f i c a t i o n a s amounts due from banks even though not charged to the account of the correspondent banks. The Federal Reserve Board i s disposed to adopt the l a t t e r course, and a l s o , when the m a t t e r of r e v i s i n g the Board's Regulations i s next taken up, t o e l i m i n a t e the words "and charged t o the account of correspondent banks" now appearing i n S e c t i o n 111(b) (2) of Regulation D. Before t a k i n g any a c t i o n i n t h i s m a t t e r , however, t h e Board wishes to have the b e n e f i t of your views on t h e questions presented. Very t r u l y yours, E. M. McClelland, Assistant Secretary. TO GOVERNORS OF ALL F . R. BAMS.
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